Venezuelans turn to Bitcoins to bypass currency controls | Hacker News Reader

Venezuelans turn to Bitcoins to bypass currency controls

reuters.com

174 pointsrafaelm95 comments

I am from Venezuela.

In case you are wondering how terrible the Venezuelan economy is right now, think about this: Our biggest denomination bill (100 Bolivares) is not enough to buy $1 USD [1]; in january 2013 you could buy $14 USD for the same amount. Also think about the fact that Venezuela has the largest proven oil reserves in the world [2].

I'm not even going to try to explain the currency exchange and control mechanisms (CADIVI and SICAD), they are basically operating like a lottery to select people who will be allowed to buy dollars at the official government rate. Everyone turns to the black market, but the demand is extremely high, and the supply barely exists.

Bitcoin won't solve our problems because no one will want to sell for Bolivares. The bolivar has been devaluated twice in the past two years, which has decreased it's value by more than 50% when compared to 2013.

Sources:

[1] https://dolartoday.com/

[2] http://en.wikipedia.org/wiki/List_of_countries_by_proven_oil...

would they sell "things" for bitcoins?

But what is there to sell? Every industry has received incredible shock from the economic situation, there are no dollars to import material goods from the outside so that they can support themselves. Besides, I can't think of anything other than oil that others would be interested in buying.

Not sure if I understood your question correctly, sorry if this doesn't answer it!

> because no one will want to sell for Bolivares

What about tourists? You should encourage tourists to bring bitcoins.

Tourists generally don't go to Venezuela because the country is extremely unsafe. The capital, Caracas, is ranked as the second city with the highest murder rate in the world [1]. There is an extremely low regard for life - petty criminals will kill you for your phone.

However, we do have some of the most unreal places on the planet! [2]

[1] http://www.theguardian.com/world/2014/jan/12/violent-crime-m...

[2] http://1.bp.blogspot.com/-4ghbtqN0bRY/TyV8kLJVivI/AAAAAAAABX...

It's a shame. I visited Caracas and Isla de Margarita for about a week 10 years ago. It's a very beautiful place and the people I met were very friendly. I hope the situation improves. Would love to visit again!

Damn, that's a nice waterfall. Not "worth dying over" nice, but close to it.

That's the Kerepakupai Vená or Angel Falls, highest waterfall in the world [1].

[1] http://en.wikipedia.org/wiki/Angel_Falls

You're half right: "tourists" are the one of the solutions, but you can't easily turn Bitcoin into food.

There's a booming trade in the port cities. Sailors bring dollars, which they trade for sex. That turns prostitutes into currency traders. Bloomberg had a story about this earlier this year.

http://www.bloomberg.com/news/2014-06-09/venezuela-prostitut...

Yeah, this. I would much preferred to have taken in bitcoin.

Either you use the ATM and everything is 3x as expensive as it should be or you carry around a minimum of $1000 on your person in one of the most violent countries in the world.

$300 of my USD stash got stolen by the Venezuelan army guard while strip searching me on the border with Colombia.

Would using BTC for remittances have any advantage to the way people currently do it?

How is it usually done now? Through USD?

Is holding USD in Venezuela more valuable than BTC?

Remittances are all about cash management, where BTC doesn't help. There is (was) a company called Buttercoin that wanted to do it, but I think they have since switched to a white label exchange model.

Have you ever tried to buy bitcoins with our annual internet allowance ($300 per year on online purchases with credit card)? That's one way to get an instant 1000% profit (the official rate is Bs.11 per $ and the black market rate has been swinging between Bs.98-100 per dollar.)

I think holding USD in Venezuela is much more valuable. Most people wouldn't know what to do with bitcoins in the country. With USD, you can sell them in the black market and get bolivares instantly. You can live pretty comfortably here with $200 per month.

It's worth noting that the president, Maduro, had the brilliant idea that by blocking all the sites that report the value of the dollar (like dolartoday, posted by fellow venezuelan climber_mac) in the black market, he would somehow solve all our economic problems. Now you can see why our economy is gone to hell.

I have never bought bitcoin with the allowance. In case anyone is wondering, the government sells each Venezuelan $300 per year at the official exchange rate. This is the only amount that we're given without having to go through a lengthy process that typically involves having 'friends' within the government to pull strings for you. People usually buy Amazon gift cards with the money.

It's too scary to put your money in another volatile currency - I suppose people prefer dollars because they are stable and can be spent on popular e-commerce sites.

Are there no alternative currencies in Venezuela (like the Palma in Brazil)?

http://en.wikipedia.org/wiki/Banco_Palmas

I don't know if they have an alternative currency but there are some community banks similar to that one operating there (http://www.bankomunales.com/ (in Spanish)).

Cool, thanks for the link. For anyone else interested...

"Fundefir created a model of self-managed financing called Bankomunales con K, based on the exclusive use of funds from members of community groups, as a source of financing."

"Currently, there are around 150 groups, or Bankomunales, in 9 Venezuelan states."

Does anybody there take out loans in Bolivar, use the Bolviar to buy $300 at the official exchange rate, then sell a few of those purchased dollars in the black market to repay the loan immediately?

ye this is a pretty common practice, in fact, this is mainly the reason of why we have such high inflacion (because there is people, who, of course are gov related but also anti-gov, who only care to make free money from exchange corruption and they have alot of intentions to keep this going on).. also there is a 3000$ allowance to expend in travels wich you pay at 11 Bsf per USD, wich made a huge business for your average joe people since you pay the gov 33k Bsf but once you "cheat" the system, you get a return of 270k BsF after paying the gov. This is the major reason of all those flights problems in our country, because in order to get this 3000$ quota, you need to buy a plane ticket, airlines also want their cut on the huge bussiness so they sell overpriced tickets that people who will "cheat" will still buy, also note that the "big debt" that the gov has with the airlines is because when airlines sell a plane ticket in BsF they take the 100 Bsf Per USD rate, but then they expect the gov turns all those BsF into USD at official 6,3 rate, thus the gov "owes" the airlines billions of billions.

Anyways this is just a resume to see how everything is related, anyways as alot of people says here, bitcoin wont help at all. Sorry for mistakes in english . :) Edit: BsF = Bolivar

"Have you ever tried to buy bitcoins with our annual internet allowance ($300 per year on online purchases with credit card)?"

Wait, what ? What is an "internet allowance" ? How would one credit card issuer know if you had already spent $300 using a different credit card ?

How can this possibly be a thing ?

The govt created this central organism that controls your annual foreign currency allowance (it was called Cadivi, now called cencoex). You need to submit a bunch of docs to the bank you want your allowance at. So you can only spend your money using the credit cards issued by that bank.

For example, I sent in my papers to my bank at the beginning of the year. They activate my cards with that bank to be used online. You cannot use any other bank for online purchases.

We also get a $2500 yearly allowance for spending outside the country (if you travel) under a similar, more bureocratic mechanism.Unfortunately, since the govt has a MASSIVE debt with international airlines, most of them have cut most of their flights and you cannot get a flight out of Venezuela unless you are rich and can pay in dollars.

People in Venezuela will still need Bolivares for everyday life, though. So, just like people now buy USDs or Euros as savings they could also do it with bitcoins I guess, no?.

Also, as far as I know, it's illegal in Venezuela to buy/sell foreign currency outside of the systems provided by the state. The anonymous nature of bitcoins could be an advantage in that sense.

How did Veneuzuela end up like this ?

Communism.

Way to over simplify things. Present-day Venezuela is very far from being communist even though the current government likes to market itself as such.

The reason Venezuela is like it is now is an incredibly complex subject spanning several decades of bad governments, corruption, oil money dependency, social inequality, etc ... accelerated by a particularly disastrous current government.

Venezuela is socialist democracy, as there are democratic elections and multiple political parties. Policies of nationalisation under Chavez, though, probably did contribute to the current problems, as they caused a flight of capital.

http://www.reuters.com/article/2011/12/01/venezuela-national...

When attempting to consolidate power very destructive economic policies are often used out of fear that those forces could threaten ones' power. Similar thing happened in Zimbabwe. Russia is on this same path now too.

Venezuelans who can should request to be paid in bitcoin from foreigners. This probably would work best for those abroad since the bitcoin can be remitted as if there was no border at all. Venezuelans who have knowledge labor -- programmers, researchers, data entry, could also be paid in bitcoin. Eventually when enough people have bitcoin it could also be used to exchange value without the country.

Why don't you mine for BC using the super-cheap gas (6 cents a gallon)? (the ultimate insult to environmentalist, such as myself, everywhere)

You mean using a gasoline generator to power the miners? I wonder if using the house electricity isn't cheaper. If it cost more, wouldn't people all begin using generators?

Gas is apparently 0.06 cents (USD) a gallon. A gallon of gas provides roughly 30 kW/hr. How much is a kW/hr of electricity in Venezuela? If it is more than 0.002 (USD) a kW/hr you might be better of w/ electric generator. Anyone have any more recent numbers? I see an article from 2013 that says prices in Venezuela are roughly 0.03 cents per kW/hr. Maybe someone can check these calculations. Could have made an error.

I think there paying far more than 6cents per gallon.

Still, you forget generators are less than 100% efficient. At 30% that 30kW/hr = 9kW/hr for 6 cent. = 1.5 cents per kW/hr + cost of generator which is far from free.

Anyway, your far better off just selling the gas.

I think it is the efficiency that I didn't consider. As far as I know, gas is roughly 5 cents a gallon.

For comparison I suspect you could easily get 1$ a gallon by just selling that gas. Using a mid sized fishing boat you could probably move ~1 to 10k gallons from the ships's fuel tank to a near by country without that seeming odd. Make that trip once a week and your living the good life without doing anything 'odd.' Hell I suspect you could simply meeting other fishing boats at sea fill their tanks for cash or even fish which would be next to impossible to catch.

> Bitcoin won't solve our problems because no one will want to sell for Bolivares.

Price is everything.

Sure, people might not be willing to buy Bolivares in exchange for bitcoins according to the "official"/government set dollar price, but what about at 74,000 Bolivares per bitcoin, 74,000,000 Bolivares per bitcoin, 784 Bolivares per bitcoin? That's how a market forms.

Once upon a time (only a handful years ago), no one were willing to sell US Dollars for bitcoins either. Until there was, and now many people are willing to sell bitcoins for dollars.

The only thing that might prevent this from happening is regulation, which I imagine will be imposed in countries that already have USD controls, if people start using bitcoins to circumvent capital controls on a larger scale. But that's not really a problem of bitcoin, but rather the problem of an oppressive government.

Bitcoin is just a part of the solution, a single arrow in the war against the disgusting institutionalized theft being perpetrated by the Venezuelan government.

Other "arrows" include the existence of a thriving black market, competition from other currencies (ie the US dollar), the $300 stipend, the barter system, etc. All these give the citizens a choice to not use VEF for transactions, and as demand for something goes to zero (especially in the face of ever-increasing supply), so goes it's value.

Regarding crypto-currencies specifically, if it is proven that there is a market for "Bitcoin plus alpha" (eg guaranteed convertibility for USD - probably not gonna happen but for example) tailored for the Venezuelan market then you can bet someone is working to make that "V-coin" a reality.

So don't look at Bitcoin as the silver bullet solution to solve Venezuela's woes, but rather as a significant step in the war against oppressive government.

The problem here is that nobody wants Bolívars (the Venezuelan currency), since it's almost imposible to convert them back to USD or any other currency. A sales manager for Marriot was telling me that in Caracas they charge 40$ a night if you pay with USD or 300$ if you pay with bolívars. So the only people that would be willing to exchange bitcoins for bolívars would be people who live in Venezuela. So I assume that supply of bitcoins in Venezuela is really scarce, and their price should be on pair with black market dollars, so probably 6-7x the international price.

The only way around this would be if Venezuelans were to mine their own bitcoins, but given that most of the mining equipment is sold either in USD or BTC, it's just a catch 22.

So no, there is no bitcoin economy in Venezuela and as long as they keep their strict capital controls in place, there won't be any kind of economy in Venezuela.

The point is you get a fair, unregulated, market exchange rate of Bolivars to USD (or Euro or Yuan or whatever) via bitcoin currency. At whatever that rate is based on supply and demand and you can transact at that rate.

Currency controls mean "we the govt. say our currency is worth x USD and you must transact at that rate" which kills the market and means zero USD sellers.

I'd expect the USD to Bolivar rate via bitcoin to be significantly more Bolivar to USD than the "official" rate. In a sense this is nothing especially new in markets. You could always get a wildly more favourable rate for your USD behind the iron curtain on the black market. Local currency is worth something, people will take it at some value. Even zimbabwe, just add a bunch of zeroes...

Exactly, in Argentina the situation is similar. The problem is that no body wants bolivar (or pesos) at the official rate because is unfair.

Bitcoin can help to make that more fair and here is an example. An example is a person that works for a company abroad from Venezuela . If he does what is supposed to do, he will get paid in dollars but with a wire transfer but the local bank gives bolivar at the official rate only and won't be able to buy dollars back.

On the other hand there is always another person that needs to get dollars, to travel or to pay something.

One way to solve this issue is with Bank accounts abroad, the first person get paid on an account in a bank outside Venezuela, then he wire to the second person acc abroad. In exchange the second person pay in bolivar at a good rate to the first one. In the black market it sometimes call "wire dollar" or cable dollar.

Bitcoin can makes this easier because is more tangible, you can meet someone at any place and move the bitcoins from phone. It requires less trust between the parties.

The money always go where it wants to go, there is no way to regulate.

It's true. Try and find an online exchange willing to exchange Bolivars (VEF) to USD. If you are a bitcoin seller, what can you do with Bolivars other than spend them in Venezuela?

Xe.com exchange rate is currently 1 USD = 6.29 VEF

So you would expect 1 BTC to be worth around 350*6.29 = 2,201 VEF.

Yet on localbitcoins Caracas they sell for more than 20 times that much:

https://localbitcoins.com/places/570916/caracas-ve/

It seems like a tremendous arbitrage opportunity, if only there was a way to sell Bolivars.

Anyways, if I am ever to travel to Venezuela, I will come with Bitcoins.

Actually, the 6.29 exchange rate is only for importers of medicines and food, which are mostly government friends and cronies who are becoming multi-millionaires by buying dollars from the govt at Bs.6.9. Then they claim they bought food from a foreign company (which they also own in Panama or somewhere else) and they sell it back to the govt at Bs.80-100 per dollar and they pocket the difference.

Or they buy dollars at the 6.9 rate, claim they are importing farming machinery for $2-3million. Then they buy one tractor for $50k, pay off the corresponding govt official, and keep the difference. And I'm not making this up. They recently tried to arrest 2 or 3 guys on this (they probably didn't pay enough) and they just fled to Miami and Panama.

If you come to venezuela, bring dollars. You will always find someone that will buy them at the black market rate of almost Bs.100 per dollar. You could live like a king here with $1000 for quite a while.

Or, what are the chances that things get bad enough that people begin to request payments for goods or services in bitcoin?

This would solve the problem of shortage of physical us dollars.... Or in the case that you have the ability to request bitcoin can you simply request virtual us dollars just as easily? ( are there restrictions against this? )

Actually, is the other way around. It is cheaper to pay in Bolivars than Dollars. Right now is 9000 Bolivars (Around 90 Dollars) vs. 130 Dollars a night at the Marriott in Caracas.

It used to be crazy before, if you paid in Bolivars it was only 100 dollars vs 600 dollars if you paid in USD. Fun fact, even if you were paying in Bolivars way less, you still used to get Marriott points as if you were spending 600 dollars a night, so the quickest way to get a lot of points was staying at the Caracas Marriott.

Having said that, I have yet to hear about anyone bypassing the regulations by using bitcoins. Is still not that hard finding someone selling dollars.

According to the Marriott page, the exchange rate that they apply is 1USD=50VEF [1]. This is 7 times the official exchange rate, on par with what I was saying. But I haven't been to Venezuela, so I might be missing something.

[1] http://i.imgur.com/D1wLoQM.png

this also used to apply for airlines miles, it used to be awesome :D

> The problem here is that nobody wants Bolívars

how do you pay your taxes?

That's interesting, but I'm pretty sure a physical dollar bill is more useful. A physical dollar can be used to make purchase stuff locally without a computer, and is easily accepted for a sale. In the example given in the article, the only reason the first guy in the article uses bitcoins is to buy an Amazon gift certificate (denominated in dollars) to buy stuff mail order.

The only real lesson to be had from the Venezuela situation is that far-left governments suck at basic economics and math. There is no lesson to be had about bitcoins in this situation.

The issue is that they are lacking physical dollar bills. Might as well try all venues. It shows that bitcoins can help alleviate currency demand. As others have commented, bitcoin adoption is steadily going up.

Is there lack of computers? Everyone has a smartphone these days. And bitcoin works over SMS, so you don't even need a smartphone.

Everyone has a smartphone these days.

In Venezuela? Are you sure?

So do far right governments. It's almost as if we need a sort of middle ground.

Or more dimensions?

People have figured out how to hold stable value on blockchains by using them to issue contracts for difference. You can acquire a token that maintains the same value as the dollar, backed by people betting on price changes between the dollar and the blockchain's internal currency.

Volatility isn't a drawback of cryptocurrencies anymore, and it's going to be entertaining when countries with capital controls discover this.

Any sources about this? I hadn't heard about this before.

Bitshares does this: http://bitshares.org/

Their BITUSD has been tracking fairly well: http://www.cryptocoincharts.info/pair/bitusd/usd/bter/1-mont...

Thanks

>and it's going to be entertaining when countries with capital controls discover this

How would you explain that to a high school art student? (Please)

That means e.g. Venezuelans would be able to instantly drop out of the Bolivar and get into a stable currency, therefore instantly bringing about the tail end of hyperinflation, which drops the value of the Bolivar to zero - because now not only does no one want it (as is the status quo in real life), but also no one has it, which is what Venezuela currently has control over (by not letting people freely get out of the Bolivar).

Your forgetting about counter party risk: http://www.investopedia.com/terms/c/counterpartyrisk.asp

Any time you hand something of value to someone with the expectation for future gain it's a risk. Suppose they setup two independent companies one makes major bet's ignoring price drops and another major risks ignoring price gains. By ignoring the risk they undercut the market. If the market is sable they make money. And their downside is limited to the value of those tiny companies plus the loss of one means gains in the other. Should one fail just start a new one rinse and repeat. In theory you could set things up so either no movement or any movement was a gain as people first handed you the money for what amounted to IOU's backed by junk bonds, stocks, tulips, or crypto currency's.

PS: Do this with 100's of millions$ and you either get rich or end in jail. Do this with 100's of billions and you often get bailed out.

All bets require a margin to be escrowed on the blockchain. If the bet goes bad, it gets margin called. The bets are also fungible—holders of blockchain "dollars" can trade them freely instead of relying on the original backer of the bet. There is effectively no counterparty risk.

Just to be clear there are only two types of actual US currency out there. The paper stuff and a leder of what 'banks' (or governments etc) control maintained by the FED. So, now you have a seperate DB not actual cash or physical currency. Which means you have counter party risk. Now if the US government can decide to insure 3rd party's which is almost as good as cash but as anyone that has delt with a banking error knows there is a world of difference between cash and IOU's.

Not long ago, it was the Chinese who were apparently using Bitcoin to bypass currency controls, and that was to be the 'big thing' that would propel bitcoin on to greatness.

Now that effect seems to have petered out and the hype has switched countries... why will it be any different this time?

Bitcoin's adoption continues to increase. Make no mistake about this. It is far from having "petered out": http://avc.com/2014/10/bitcoin-adoption-metrics/ More and more people in China, Venezuela, etc, are using it to bypass currency controls. The problem was the media was hyping Bitcoin and making it sound like it would become instantaneously popular overnight. Instead, it is a process that will take some time. That is all.

If, by "petered out", you were referring to the current downtrend in price, well IMHO the explanation is much simpler: Bitcoin users are just selling coins to pay their income taxes, before the IRS deadline of October 15, 2014. My reasoning is as follow:

(1) a lot of Bitcoin users are American, so they fall under IRS U.S. tax laws

(2) most users realized incredible gains during the 2013 tax year: Bitcoin went up 5700% from $13 to $750 between January 1 and December 31

(3) 2013 was the first year for which the IRS published official Bitcoin guidelines (http://www.irs.gov/pub/irs-drop/n-14-21.pdf), thereby enticing many users to pay taxes (and no, unlike what the media like to say, a lot of us are not anti-government anti-tax punks - we like to stay legal, pay taxes, and legitimize Bitcoin)

(4) because a lot of Bitcoin users became "accidentally" Bitcoin-rich (with little or just a normal amount of other USD-based assets), they have no choice but to sell coins to pay taxes on their Bitcoin gains

Let me tell you I experienced this first-hand: I filed for a tax extension to pay on October 15 instead of April 15. I knew my taxes would probably be around $100,000, and when my accountant was done (a few weeks ago), it was indeed about $100,000 in taxes. I had always been planning to sell coins to cover this amount, but seeing how much BTC lost value in the last weeks/months, I decided to scramble and use money from elsewhere to pay for the taxes. But I am sure that many other Bitcoin users don't have a financial cushion to be able to pay a bunch of taxes at the last minute. That's why I theorize the current downtrend is caused by people selling coins to pay for taxes. In fact, if my theory is right, there should have been a dip around the time of the first deadline for those who did not apply for an extension (and had to sell coins to pay taxes by April 15), and there WAS one exactly at this time! In fact I predicted this dip back in April: https://plus.sandbox.google.com/100577178258662783679/posts/...

I'm probably the one that's wrong here but I thought because it was considered property and not currency you only had to pay taxes when it was used. In fact your IRS linked PDF seems to agree with me.

You are, indeed, wrong: taxes are owed the moment coins are mined, even if they remain unspent or unused, see question Q-8 in http://www.irs.gov/pub/irs-drop/n-14-21.pdf

It is considered property, however, when mined it is treated as property received as compensation for services rendered (i.e., verifying transactions in the block). Consequently, it is treated as income at its fair market value when received.

If the purpose is to bypass currency controls, it is to get money out of China, not back in. You don't want to sell Bitcoins for yuan (though it is certainly happening.)

Chinese miners are spending yuan to buy mining hardware. This answers the question of why run an "unprofitable" mining operation. Rather what you are doing is converting yuan to bitcoin. The mining operation is not for profit but rather a currency conversion. How much of the mined bitcoin is being converted to dollars? If it is being sold right away, that is pushing the price down not up. If they are just sitting on it, then a cause to sell it all could push the price down hard.

This same thing applies to money laundering in general. At some point, if not already, authorities would investigate who is buying massive quantities of hardware that is viable for mining. Of course there have been shortages, which PC gamers hate, so perhaps third party sellers like eBay hold more answers than nVidia.

If I was making big bets on the price Bitcoin I would have my researchers trying to answer these questions above all else. Are there miners sitting on huge quantities of bitcoins who will at some point in the near future are likely to become motivated sellers? Secondly, I would be trying to figure out if any of the major exchanges are involved in fraud like Mt Gox was.

Amusingly all of the bitcoin speculators equate the success or failure of bitcoin with the increase of its price. That is completely missing the point of cryptocurrency.

FWIW Venezuelans on reddit and other internet forums are very skeptic about this. They say it's just a more convoluted way to get USD.

http://redd.it/2iocr5

This is why I think a lot of VCs are investing in the Bitcoin space, and I why I think there is an extremely bright future for the currency. Many economists (i.e., Paul Krugman) can't get past the idea that a currency needs to be backed by a state to be a real currency. That's the most ridiculous claim ever...currencies existed long before nation-states ever did. Events like this are proving those economists wrong.

> Paul Krugman [...] can't get past the idea that a currency needs to be backed by a state to be a real currency.

I've not read everything he's said on bitcoin, but I've never seen him explicitly make that argument. Do you have a link?

Krugman hasn't been that clear about why he doesn't like bitcoin. Apparently he mostly does not like it because it is favored by Libertarians. He has endorsed the views of Brad Delong (an econ blogger with similar views and style) that a currency needs to be backed by a taxing authority and/or central bank (i.e. a government):

http://krugman.blogs.nytimes.com/2013/12/28/bitcoin-is-evil

You're not reading very carefully. The argument De Long makes in the excerpt that Krugman endorses is not that "a currency needs to be backed by a taxing authority and/or central bank", it is that, for a commodity (currency or not) to serve as a stable store of value, it must have something providing both a ceiling and floor for its value, and one of those (the floor) is not immediately apparent for bitcoin.

This is very different from your argument about government, as is evidenced by the fact that his two counterexamples of things where the ceiling/floor combination are available and specifically identified are the US dollar (a government-issued currency) and gold (a commodity which is not backed by a taxing authority and/or central bank.)

Actually I think he is right and you are wrong in this case. The section of DeLong's essay that Krugman quotes in his article though is the claim that Bitcoin was designed as a weapon against government central banks and their ability to tax, and to monitor citizen financial transations. The article "Bitcoin is Evil" was written not to ask "does bitcoin work" but "is bitcoin morally bad or good?" And Krugman says "bad" because he believes it would undermine the government's ability to use monetary policy to achieve various goals.

> The section of DeLong's essay that Krugman quotes in his article though is the claim that Bitcoin was designed as a weapon against government central banks and their ability to tax

No, the section of DeLong's writing that Krugman quoted didn't deal with that, it dealt with the ceiling/floor issue I described; this was in the section of Krugman's piece discussing the postivist evaluation of bitcoin's ability to function as a stable store of value.

What you seem to be describing is the excerpt of Charlie Stross's work that Krugman quotes in the shorter bit at the end where Krugman is discussing normative evaluation of bitcoin's purposes.

Charlie Stross and Brad DeLong are two different people, and Krugman cites them for very different purposes. (One about bitcoin's purpose and one about bitcoin's functional properties.)

Agreed. This is where bitcoin matters. It isn't that big a deal to those of us who live in a free country with a stable government, a stable currency and a readily available banking system. But to people who don't have those things, bitcoin offers freedom and prosperity.

A currency just has to be backed by something. Money laundering is something. Drug trafficking is something. The fact that Venezuelans are using it to launder money is not "proving those economists wrong", it's making those economists wrong.

And the more mainstream it gets, and the more tracked it gets, and the harder it gets to buy what you want with it without leaving some sort of record, the more it reverts to its natural value of zero.

One use for Bitcoin is "Paypal replacement". There are situations where that use being traceable is not a problem; for instance, I have no problem making public the fact that I pay for a LWN.net subscription, and in fact, the LWN.net site itself reveals it every time I post a comment there.

Therefore, if what you are saying is valid, Bitcoin's natural value is above zero.

I agree with you in that this is an excellent and demonstrably valuable use case for Bitcoin - we saw the same thing happen in Cyprus with the protests there.

I don't think I agree about this meaning there will be a bright future for it. Venezuela and Cyprus are unstable, extremely corrupt governments. Bitcoin thrives in that environment. A bet on Bitcoin seems to be a bet that those kinds of environments will endure and are inevitable, which is vaguely reminiscent of 2nd Amendmenters and the way they want their guns because it'll help them defend against the "corrupt, evil police state".

The problem is that America isn't actually a corrupt, evil police state and neither is it truly on the verge of imploding. I would bet against Bitcoin, at least in America, for this reason.

> America isn't actually a corrupt, evil police state

I won't say evil, because I think most problems in government are attributable to incompetence, but I think it's a plenty corrupt police state.

OK, define "police state".

> can't get past the idea that a currency needs to be backed by a state to be a real currency. That's the most ridiculous claim ever...currencies existed long before nation-states ever did.

I think if you examine those economists' arguments further, you'll see it doesn't have as much to do with "OMG where's the state???!" as you seem to think.

As you yourself point out, economies have worked since long before nation-states have existed, so maybe the Bitcoin evangelists might want to recognize that being "like gold but with bits" doesn't change all the economic rules.

Nixon took the US off the gold standard, fiat currency controlled by central banks is the real new experiment.

FDR took the larger U.S. international economy off the gold standard in 1933, so if "bank-controlled fiat" isn't exactly "new". And even that is a highly American-centric POV; other economies have worked on bank controls and fiat long before the U.S. even existed, including China in the 11th century and England starting from the 12th century.

"Insignificant percentage of Venezuelan turn to Bitcoins to bypass currency controls."

That is a more accurately title.

Bitcoin isn't a bad way to save money if you can't set up an offshore bank account. Sure beats the local currency.

How far off its peak is it again? 75%?

The dollar is around 99% down off its peak. So?

Yo just chose some arbitrary timeline that bitcoin looks bad at. That's bad logic.

Not year-on-year it's not.

Well, sure, but how do bitcoins look if you go back two years?

Year-over-year bitcoin is up approx. 300% as of today. In fact, it was 90% of the time in the past 5 years up YOY, except for 5-6 months after 2011th bubble.

I'm pretty sure that won't be true in 6 weeks time.

Which would make it a far better choice than the local currency.

I recall on the William Shatner sci-fi TV series TekWar people used what looked like USB thumbdrive which they connected to share credits.

Too bad Bitcoin couldn't be used that way without a smartphone, something simple and no risk if stolen.

>Too bad Bitcoin couldn't be used that way without a smartphone,

I think the minimal secure interface is something like a Trezor, which is pretty similar to what you describe.

Anything without some kind of confirmation UI can't possibly be secure.

once again bitcoin proves its primary utility is crime

Is this why the price dropped so much? Increased demand? :D

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