
A Prediction: Bitcoin Is Doomed to Fail - peter123
http://dealbook.nytimes.com/2013/11/27/a-prediction-bitcoin-is-doomed-to-fail/
======
cs702
Bitcoin befuddles experts who analyze it from a narrow perspective, because it
is not just a new medium of exchange or a new store of value: it is also a new
kind of point-of-sale payment system (one that doesn't require payment
processors), a new kind of global financial transfer system (one that doesn't
require financial institutions), a new kind of time-stamping certification
system (one that doesn't require notaries or county clerks), a new kind of
contract-enforcing mechanism (one that doesn't require lawyers), etc.

With rising global adoption, many new kinds of applications are likely to be
created to take advantage of the Bitcoin network, the design of which even
specifies a built-in script for defining and executing new types of
transactions involving any arbitrary number of parties.[1]

In short, Bitcoin is a _technology platform_ \-- one that is benefiting from
network effects.

It may fail as "money" (in a narrow sense) and still succeed as a global
platform.

In fact, Bitcoin is already a success.

\--

[1] [https://en.bitcoin.it/wiki/Script](https://en.bitcoin.it/wiki/Script)

~~~
stevewilhelm
> It may fail as "money" (in a narrow sense) and still succeed as a global
> platform.

I think that was the author's point.

For example, Paypal, Amazon or the IRS could announce tomorrow they will
accept payment in Bitcoins but peg their BTC/USD exchange rate to one.

Speculation would all but stop and Bitcoins would become a transaction
platform.

~~~
mindstab
No, because no one would give them bitcoins at 1:1 and they can't magic up
their own, they 'd have to buy them at market price and then sell them at a
hilarious loss.

~~~
stevewilhelm
eBay, Amazon, and IRS don't need Bitcoins, they can set any exchange rate they
want.

If enough goods and service providers followed suit, current speculators would
have to take a hilarious loss to buy anything.

~~~
mindstab
they can sure set them, and then no one would use them. do you not understand
money?

what are you, the owner of 100btc going to do:

a) buy $100usd worth of goods at ebay directly

b) cash out at a proper exchange for $100,000usd, then buy $100usb worth of
goods on ebay and have $99,900usd left over? or cash out ONE btc for $1000usd,
buy $100usd of goods and have $900 usd left over AND 99btc?

How do you expect any even remotely rational players do participate in this
farce?

~~~
stevewilhelm
In any financial exchange, both parties, the buyer and seller, need to come to
agreement on a price.

Given the fact that current BTC to USD exchange volume is fairly small, it
wouldn't take that many large global goods and service providers pegging their
BTC/USD exchange rate to cause the speculation market to collapse.

Those that recently bought their Bitcoins at $900 would sell below the current
high price to realize their gain and avoid a potential loss, then those who
bought at $800 would follow suit, and so on.

In very short order, Bitcoins could be trading in single digits.

~~~
dwaltrip
The buyers and sellers have come to an agreement already. They prefer the
price of $1000. Any large retailer attempting to manufacture an artificial peg
would only create a good amount of temporary humor.

~~~
djur
Retailers aren't going to set prices for their goods that might fluctuate from
$1 to $10 to $50 back to $1 within a week or so. It'd make it impossible to
run a business.

What they ultimately want is to guarantee they're going to receive the
equivalent of $X for every widget they sell, so they'll either have to declare
that Y BTC = X USD regardless of market prices, or they'll have to accept
whatever Y in BTC is equivalent to X USD on a given exchange on a given day --
which is essentially equivalent to doing business in USD directly, with BTC as
just a weird payment mechanism.

Businesses are going to be hesitant to accept BTC for the same reason they
don't tend to accept payment in kind -- you need dollars to pay taxes and
wages.

~~~
dwaltrip
Payment processors such as bitpay offer same-day bitcoin-to-fiat conversion
and bank deposit with extremely low fees (0.1% - 1%), and are becoming the
defacto standard. This is expected during the bootstrapping phase. Later, if
bitcoin firmly establishes itself, merchants could choose to not convert
directly to fiat.

~~~
djur
Merchants would still need to convert to legal tender for payroll, rent, and
taxes. Their income and expenses would still be more efficiently denominated
in dollars (or the local equivalent). What is the expected draw for businesses
to keep their operating funds in BTC as opposed to USD?

~~~
dwaltrip
Did you read my post? Bitpay converts bitcoin to the fiat currency of your
choice. It is hassle free and much cheaper than credit cards.

------
nostrademons
I think Bitcoin's doomed to fail, but not for the reasons the article suggest.

There're ample historical counterexamples of currencies that are _not_ tied to
a government. Gold is the most obvious example; if currency was inextricably
tied to governments, there would not have been a mad rush to colonize the New
World (and extract its gold reserves). In prisons cigarettes frequently serve
as currency, as a medium of exchange that is widely valued.

What really makes a currency is _confidence_. People have to believe that
other people will continue to value the currency later. Government backing can
provide one source of confidence. But so can strong crypto, and one could
argue that these days people have more confidence in crypto than in
governments.

What'll really kill Bitcoin is that this speculative wave has made the price
incredibly volatile, so volatile that real merchants selling real goods have
no idea what to price things at. So everyone holding Bitcoins purchases them
for investment value, and then the price will crash when it stops going up.
That destroys confidence in the currency, which destroys the currency.

I could easily see a successor currency based on the Bitcoin protocol emerging
from the ashes, though. By then the speculators will have been burned so badly
that they'll stay far away, so it'll quietly gain adoption in the background,
and then eventually become the new currency of choice when inflation starts to
make it's way through current fiat currencies.

~~~
Aqueous
If you use a service like BitPay, which most BitCoin merchants too, you
declare your price in dollars and the API uses the current exchange rate to
convert it to BitCoin, minute-by-minute. The prices float up and down with the
currency, so pricing is largely a non-problem.

It makes rational sense for merchants to accept BitCoin and to keep some
holdings in BitCoin because the price is increasing at such a rapid pace. Why
wouldn't you want to sell something for x BTC today when that amount could be
worth twice as much tomorrow? For the same reason it doesn't make a whole lot
of sense to spend a BitCoin. Eventually the currency will level out when the
incentive to spend equalizes with the incentive to receive. This might not
happen for a while as long as speculation remains the predominant driving
force.

~~~
trekky1700
If you're valuing everything in dollars, setting your price in dollars, and
converting to and from dollars, why not just use dollars. I think this is the
leap BitCoin is yet to make. When we no longer have to convert it and compare
it to dollars.

It has loads of benefits over using the dollar, but a lot of those benefits
are lost the second you're having it exchanged.

For instance, if I wanted to use bitcoin for contracting, my clients would
have to convert their dollars into bitcoins, then I'd accept the bitcoins
smoothly and easily, and then I'd have to exchange them (sell them) back for
dollars to buy groceries and pay for the bus. Whereas right now, I get an
Interac e-transfer and in less than 30 seconds I have money I can go to the
store with, and it cost the sender only a dollar in fees. Sure, it's taxable,
but the second I convert it from bit coins it's trackable anyway.

I definitely think this is a model we're going to see a lot more of in the
future, but Bitcoin with it's thousand dollar and rising valuation and
constant fluctuations is very difficult to get behind and actively use. And
with the number of people, just of the people I know, who bought in hoping to
cash out, there might be quite the tumble on the way. Who knows though, it
will be interesting to watch, that's for sure.

~~~
hnha
I read a great comment at a local forum earlier along the lines of: No one
wants bitcoin, everyone wants ... to exchange their bitcoins for as many
dollars as possible.

~~~
waps
Exactly. For the moment it's mostly cementing USD's position further.

------
vijayboyapati
He is essentially giving the chartalist theory of money. Money cannot arise
except through the fiat of the state. Chartalists hate the Mengerian theory on
the origin of money because it posits that money arises as a market phenomena.
Eventually the state co-opted money, but that does not mean money _arose_
because of the state. The emergence of bitcoin is a thorn in the side to
chartalists. We can't really go back and figure out the exact history of how
gold emerged as money, but bitcoin is being monetized right before our eyes.
The angst felt by chartalists is also felt by inflationists. They hate the
idea that you could have a successful currency that cannot be inflated beyond
a fixed supply. So they are naturally defensive. Every success bitcoin has
undermines their world view.

~~~
fiatmoney
That's not my reading; I believe what he is getting at (similarly brought up
in Graeber's book) is that when the government controls a large enough share
of the economy, the sine qua non of "money" is that you can pay taxes with it.
That doesn't require anything about the historical origins of money.

~~~
andrewla
I should probably read Graeber's book, though based on what I see here I might
find it a bit exhausting. I hear this argument a lot in discussions about
bitcoins, and I ask, but have not yet received, a good explanation.

Let me ask you if you can summarize the reasoning for why paying taxes in a
currency helps a currency? It seems very obvious that the opposite is true --
if you don't have to pay taxes by working in an alternate currency, then you
would obviously want to use that. Which is why tax law always requires arcane
provisions to allow the taxation of barter and foreign currency transactions
so that the loophole can be closed.

It seems that if the ability to pay taxes in a currency were sufficient to
support a currency, then laws dictating how to handle non-local-currency
transactions would be unnecessary.

~~~
fiatmoney
"Debt" really is good, especially if you disregard what he writes about >1950
where he messed up a few factual assertions.

It's not so much that "paying taxes in a currency helps a currency" \- it's
that _forcing_ people to pay taxes in a particular currency or go to jail
creates demand for that currency, which percolates through the economy
(especially if they're concurrently giving it out when they're obliged to pay
someone).

Consider what would happen if the US declared "you can pay your taxes in BTC,
and only in BTC". There being ~21M bitcoins, and ~$2.5trillion of federal
taxes, the price of BTC massively spikes. It's also suddenly much easier to
pay people in BTC and not futz with an effective forex trade every paycheck
(especially since that's what the government is paying all of its contractors
and pensioners in).

~~~
jamoes
> forcing people to pay taxes in a particular currency or go to jail creates
> demand for that currency

This is true. But, I don't think it backs up your original point:

> the sine qua non of "money" is that you can pay taxes with it.

Reworded to non-latin, I believe this is saying that without taxes there can
be no money. That just seems completely ludicrous. Sure, taxes increase demand
for money, but that is a far stretch from saying money can't exist without
taxes.

~~~
21echoes
what he really means, despite the use of "sine qua non", is that the vast vast
majority of people really don't like dealing with more than one currency, and
if their government uses a given currency, most people will use it because
they have to pay taxes with it.

> Sure, taxes increase demand for money, but that is a far stretch from saying
> money can't exist without taxes

it really depends what you mean by "money". prior to government meddling in
markets, most historical evidence points to economies relying on ad-hoc, non-
denominated credit systems (aka, i can drink at the tavern all year because
the barkeep knows i'll give him some of my grain come harvest time). these
tabs were, notably, not denominated in an abstract currency. it wasn't "you've
spent 16oz of gold at the bar this year", it was just "you've had a lot to
drink, you better give me a good portion of your harvest".

you only really start seeing professional merchants and money-based trade
after currency has been standardized by axial age governments for the purposes
of funding their armies. to fund the armies, governments would mint money out
of precious metal reserves, pay the army, and require the coins back from the
population at large. all of a sudden, the whole population is now legally
required to, in some manner, economically service the army (as they are the
vehicle through which all coinage enters the market). the armies would then
take over neighboring countries, enslave their population, and the slaves
would mine more metal for coining. a nice little feedback loop.

anyway, sorry i got a bit off track there, but my real point was: currency
was, by all historical evidence, definitely an invention of/majorly promoted
by the state.

------
theboywho
If this claim is true, the author is certainly not the one you should be
listening to for such a topic. I suspect a sponsored article paid by a third
party, as it seems to contribute to the confusion of the uninformed about
bitcoin. But then they say never attribute to malice that which can be
adequately explained by stupidity.

>> "The developers of bitcoin are trying to show that money can be
successfully privatized."

There is so much bias in this sentence that I don't even know where to start.

First of all, the developers of bitcoin are not necessary trying to show
anything, are also not necessary the ones or the only ones. Bitcoin is an
experiment, and they say that explicitly everywhere. Second, people
encouraging the use of bitcoin are way bigger than what the author seems to
imply, It's now an economy worth billions, remember?

>> "sophisticated algorithms guaranteeing the anonymity"

Again, bitcoin does not guarantee anonymity. They say that explicitly here
[https://en.bitcoin.it/wiki/Anonymity](https://en.bitcoin.it/wiki/Anonymity)

>> "bitcoin is tiny; at the current exaggerated exchange rate, the total
projected volume of “coins” is worth less than the gross domestic product of
Mongolia"

_is_ tiny now doesn't give you a clue about it's future size.

"But the monetary philosophy behind this web-based phenomenon can be traced
back to one of the oldest theories of money."

Web-based? Seriously?

I honestly stopped reading to do my brain a favor.

------
ratsbane
I don't know if bitcoin is doomed to fail or not but, the thesis of this
article isn't credible. There has never been anything like cryptocurrency in
the history of the world and this statement may well not apply: "They will
fail, because money that is not issued by governments is always doomed to
failure. Money is inevitably a tool of the state."

~~~
ewams
Is gold issued by governments?

~~~
snowwrestler
No, and it failed as a currency.

~~~
sergiosgc
Did it? Or was it Bretton-Woods that failed? If I remember my History, Nixon
decoupled the USD from gold to regain the ability to devalue the dollar, as a
tool for dealing with the huge debt accrued during the Vietnam war.

It wasn't a gold-currency world, it was a world of gold-backed US dollar. It
makes a huge difference. While the advantages of being a reserve currency
superceded the disadvantages of not having monetary control, Bretton-Woods
stood. Once the tables turned, the US ended the gold backing.

Bretton Woods stood for close to 40yrs. The current system has about the same
age and much as Bretton Woods is failing because the US abused its position as
reserve currency to wage war financed by debt. History does repeat itself, in
slightly different color tones...

~~~
enraged_camel
>>Did it? Or was it Bretton-Woods that failed? If I remember my History, Nixon
decoupled the USD from gold to regain the ability to devalue the dollar, as a
tool for dealing with the huge debt accrued during the Vietnam war.

The point is that it failed as a currency as soon as it lost the government's
backing.

~~~
praxeologist
The gov't has outlawed gold and silver as currency in favor of its fiatbux. If
my friend and I like eating Skittles then some bully come slaps us around if
we eat them, that isn't failure of us liking Skittles.

~~~
enraged_camel
No, the government came and said you can't use gold or silver to trade
Skittles, because neither material is a convenient medium of exchange (which
is unarguably correct).

~~~
praxeologist
Fiat money has been around not even 200 years while various commodities used
in coins worked fine for much longer. Oh but to you it isn't convenient
somehow and this is "unarguably correct", lol whatever, spoken like a true
state apologist I guess. Go on believing your own alternate history where the
force and fraud of government are pretended away.

------
caublestone
At Soylent, we have been accepting Bitcoin using coinbase. The decision to do
so was based on marketing and the anticipation that not many people would
actually use Bitcoin and we wouldn't have a large risk exposure. To date only
130 people out of 12,000 have pre-ordered Spylent using Bitcoin. Our total
risk exposure was less than 1% of total revenue. The recent rocket ship rise
in a Bitcoin valuation has valued our Bitcoins at 10% of total cash from
revenue. So far, the decision to accept Bitcoin has been a tremendous success.

The recent rise in Bitcoin valuation is speculation based on merchant trends.
Well established merchants in Asia are starting to accept Bitcoin. The total
valuation of Bitcoin is still around $15Bn. The total value of annual US
domestic cash flow is somewhere around $15T. Think about the potential of
Bitcoin. Highly unlikely? Absolutely! But think about if you woke up tomorrow
and Amazon or Apple announced that they would start accepting Bitcoin? What do
you think the valuation would be?

~~~
mcintyre1994
Out of interest, do you know how standard it is for merchants to hold onto
bitcoins after accepting them? I always figured they would be converted pretty
much straight away, but with that risk/reward profile maybe others are doing
something similar?

~~~
caublestone
I wish I knew! From our perspective, because our total risk exposure is very
minimal (again less than 1% of total revenue has come in from Bitcoin) we
don't have a need to convert into cash immediately and can instead hold on to
them for future use. I imagine every business does this risk assessment to
determine their bitcoin conversion policy and all have different sensitivity
to risk (i.e. silk road 100% bitcoin revenue > soylent 1% bitcoin revenue).

------
busterarm
This article gives many headaches. It's a bit nonsensical to try and peg
Bitcoin to right wing ideology. It's even more nonsensical to associate Hayek
with Thatcher and call Hayek a "darling of the right".

The guy was every bit a classical liberal, like nearly all of the US' founding
fathers, emancipationists and suffragettes. Classical liberalism is decidedly
anti-collectivist and modern conservatives are much more collectivist than
individualist: "support our troops", faith-based education, corporations as
people. Classical liberal ideology predates the modern conservative and
liberal thought that grew from it and you can't just decide to associate him
with modern ideology.

I'd even say this article is deliberately deceptive.

~~~
parasubvert
Apparently historical fact is nonsensical now?

[http://www.pieria.co.uk/articles/lady_thatchers_relationship...](http://www.pieria.co.uk/articles/lady_thatchers_relationship_with_friedrich_hayek_and_milton_friedman)

Thatcher was one of the primary reasons that Hayek had a resurgence of
popularity in the 1980's.

------
apsec112
"After all, no bank or bitcoin-emitter can be as public-minded as a
government..."

Ahem.
[http://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe](http://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe)

You can't slap a sticker saying "public-minded!" on a government, and expect
it to therefore be public-minded, any more than you can slap an
"environmentally friendly!" sticker on a coal power plant and expect it to
stop polluting.

"What kind of role, if any, should a government take in supervising a parent's
choice of genes for their child? Could parents deliberately choose genes for
schizophrenia? If enhancing a child's intelligence is expensive, should
governments help ensure access, to prevent the emergence of a cognitive elite?
You can propose various institutions to answer these policy questions—for
example, that private charities should provide financial aid for intelligence
enhancement—but the obvious next question is, "Will this institution be
effective?" If we rely on product liability lawsuits to prevent corporations
from building harmful nanotech, will that really work?

I know someone whose answer to every one of these questions is "Liberal
democracy!" That's it. That's his answer. If you ask the obvious question of
"How well have liberal democracies performed, historically, on problems this
tricky?" or "What if liberal democracy does something stupid?" then you're an
autocrat, or libertopian, or otherwise a very very bad person. No one is
allowed to question democracy.

I once called this kind of thinking "the divine right of democracy". But it is
more precise to say that "Democracy!" functioned for him as a semantic
stopsign. If anyone had said to him "Turn it over to the Coca-Cola
corporation!", he would have asked the obvious next questions: "Why? What will
the Coca-Cola corporation do about it? Why should we trust them? Have they
done well in the past on equally tricky problems?""

[http://lesswrong.com/lw/it/semantic_stopsigns/](http://lesswrong.com/lw/it/semantic_stopsigns/)

~~~
scotty79
He didn't seem to go beyond backyard of his suburban American home with his
analysys.

Lots of countries have explicitely recognized that putting control of the
money in the hands of public-minded government is often horrible idea. Those
countries created separate institutions that are responsible only for keeping
value of money stable by regulating its supply. They don't care about what
public or government wants. They don't care what effects on the economy will
their decissions have. They just have to keep inflation around 2-3% by
adjusting rates.

USA money controller for some reason has to support the economy with their
decissions. The only reason they get away with it without hiperinflation so
far is because dollar is strongly tied to the oil and because USA after the
WWII had thriving economy, not economical wasteland like almost all other
countries that took part in the war.

------
redthrowaway
The author may or may not know what he's talking about when it comes to money;
that's not something I have more than a layman's understanding of and so I
can't judge his competence.

He _doesn 't_ know how Bitcoin works, though. Claiming it's an attempt to
"privatize money" (huh?), or that governments will "take it over" (how?
Building mining farms forever so as to maintain >50% of the network hashrate?)
suggests he thinks there's someone in control of it. That's kind of like
suggesting there's someone in control of TCP. There's a standard, sure, and
there's people who develop and maintain that standard, but if their actions
ever significantly diverged form the interests of users there'd be a brand
spanking new standard pretty quickly.

~~~
reginaldjcooper
A government with resources like the US or China could easily to a 51% attack
on bitcoin and reject any transactions they didn't like. They could "take it
over" and the cost to do so would be little more than a rounding error for
them. How would you make a new standard if, say, Russia keeps jumping in and
51%ing your transactions? You would have to centralize the mining to be safe
from them. This kills the bitcoin.

------
brownbat
The argument boils down to:

1\. Money has always been controlled by governments,

2\. So money always will be controlled by governments.

3\. Bitcoin is identical to money, but

4\. Bitcoin cannot be controlled by governments,

5\. Therefore bitcoin is doomed to fail (no date specified).

I'm not sure any of the premises are beyond scrutiny, or that the conclusion
is even meaningful.

Anyone can say that nothing lasts forever. Let us know when someone predicts
that bitcoin won't last out the year.

~~~
praxeologist
1 is false and even if it weren't the transition to 2 is fallacious.

------
lukifer
Calling BitCoin "privatized" misunderstands its nature. While it's true that
there are large players invested, crypto-currencies are protocols, and cannot
(reliably) be owned or controlled any more than TCP/IP or HTML.

Meanwhile, fiat currency (as we know it) is not merely a tool of state; it is
a command-and-control tool of the government-industrial complex, a creation
not only of the U.S. tax code, but by massive private banking institutions who
steal value from the public through complicated mathematics.

I actually quite like Graeber and his ideas; I think crypto-currencies come
closer to fulfilling "an intricate structure of social relationships and
spiritual beliefs" than the U.S. dollar ever could.

~~~
john_b
The whole article (willfully?) misunderstood Bitcoin's nature. It even implied
that Bitcoins are issued by Satoshi himself.

I think it's good to take a critical look at Bitcoin when the price rises so
rapidly, but this article is more like a political hit piece than anything
with economic merit.

~~~
waps
According to Shamir's paper, that's 95% accurate. Theoretically you're right.
Practically, you're wrong.

------
vilda
Edward doesn't know what money is. Whether it is issued by a government or not
is a matter of convenience (or legal issues) and not a condition.

Everything can be a currency satisfying these criteria:

    
    
       (1) enough quantity
    
       (2) limited quantity
    
       (3) convenient to move/exchange
    
       (4) widely accepted

That's it, nothing else.

All currencies is based on "faith". Any currency is doomed if it looses trust.
For instance cigarettes were used as currency in Germany between world wars.

And it seems to me that Edward admits that at the end: "governments are not
fully living up to the responsibility". Yep, he is contradicting the claim
that monetary policies are independent of the government. They are not and you
can see it in the price of gold.

Since bitcoin is based on math and official currency on politics, bitcoin is
inherently more trustworthy. Its deflationary tendency, limited supply, and
lack of physical presence are common drawbacks of bitcoin as a "common"
currency. Not trust. And they are actually advantageous for its particular
area.

~~~
parasubvert
Who does understand what money is? We have debates it for centuries. Money is
both trust (credit) AND commodity. Though most economists religiously pick one
view (Keynesians) or the other (Austrians).

Being based on "math" is nonsensical. Money is based on math, that's the whole
reason it evolved - to keep track of debts!

The question is one of the axioms behind the monetary system. Bitcoin's axioms
are every bit as political as a fiat currency, the only difference is the
entity that made the political judgement.

Users of Bitcoin must trust in the algorithm, as users of currency must trust
in the central bank.

------
kens
My prediction is that bitcoins are midway through a short-lived bubble and
then rapidly fall to approximately 0, and in a few years people will look back
with the disbelief now reserved for pets.com. The hype - get in right now and
get rich, or you'll miss out and kick yourself - reminds me of 1999. My in-
laws were talking about bitcoins yesterday, so bitcoins are getting the
attention of the public at large; I take this as a bubble sign rather than a
sign of success. Other factors: ease of switching crypto currencies to
something else. Zero intrinsic value (unlike e.g. gold). Price manipulation.
Risk of theft. Possibility of spectacular software bug blowing everything up.

[I'm not interested in debate; I just want to give my prediction. And if I'm
wrong, I will be sure to add this to my list of spectacular mistakes.]

~~~
aianus
I wish there was a reputable market for shorting bitcoins. It'd be nice to
earn some interest on my long position while providing the naysayers a chance
to bet against it. It'd also help with the volatility.

~~~
a3voices
Shorting bitcoin seems like a bad idea.

[http://i.imgur.com/GOYWUMo.png](http://i.imgur.com/GOYWUMo.png)

~~~
aianus
It would help if, for example, you needed to have BTC on hand for your
business but you wanted to hedge away your exposure to the exchange rate with
the USD.

------
wuschel
There are many arguments for and against Bitcoin. Only time will tell.

But I have three comments:

1\. Personally,

I would probably be - out of self interest - a strong supporter of Bitcoin if
I had any, or would have belonged to the first miners. But I have no BTC, and
such I only observe as a bystander how this technology develops.

2\. Energy and intrinsic value of BTC

For me, the argument that cryptocurrencies can be made out of thin air and
thus BTC is just some digital data does not hold. Gold can be mined from many
sources as well (e.g. in can be found in the oceans as Au2+). Or another
currency can be created and printed/minted. However, with a currency such as
BTC it takes a lot of energy to fire up such a system until a certain level of
penetration is reached, and it takes energy to maintain it. Actually, this is
one of the greatest drawbacks I see: every BTC that is created now now will be
more expensive in terms of energy cost. I prefer a one time energy and
material cost for the creation of a currency, and minimal energy/material
costs that come with its operations.

3\. Penetration and access.

I wonder if it might not have been better to distribute all BTC among all of
mankind. That way, everyone would be in possession of an instant amount of
currency and could readily engage in trading. The early mining process support
the creation and distribution of bitcoin but gives extreme gains to early
adopters. A better initial distribution might have helped to position BTC as
the dominating cryptocurrency. Right now any follow up can beat BTC if it
excels the parameters that define the adoption and usage rate of the currency
as trading medium.

------
agraddy
My prediction is that Bitcoin (or some other alt-coin/cryptocurrency) will
eventually become a single worldwide currency. It's reached a point where if a
government tries to regulate it too tightly, they will effectively be shooting
themselves in the foot and cutting their country off from outside trade.

The result is that the cryptocurrency will continue to gain momentum until it
is used everywhere worldwide. This will eventually lead to a single worldwide
government or an agreement between all countries across the world to act
uniformly in regards to the currency. This will become a necessity to properly
administer taxes and/or settle cross-border contract disputes.

Once you have a single government, worldwide government ids will be initiated
(or all local ids, like driver's licenses will require integration with a
wordwide database). At this point, the single government will then co-opt the
cryptocurrency or initiate a new cryptocurrency and require everybody to tie
their id to their cryptocurrency usage. The reasoning will be to crack down on
crime, tax evaders, etc. Because it's a one world government or all
governments are working together in lock-step, they would then have the
capability of controlling/banning the cryptocurrency. Anyone not properly
linking their identity to the currency will be breaking the law, and it will
be very difficult to participate in commerce because there will be no more
physical cash or coins.

Either way, the only way I see this playing out is a currency that most people
assume was initially intended to break from government control will eventually
lead to ultimate government control.

As a side note, I realize the concept of a one world government is
controversial, but my personal opinion is that it is an eventuality.

~~~
dinkumthinkum
Single world wide government? ... Sheesh ... Don't hold your breath.

------
zamalek
The main problem with cryptocurrencies, as I see it _today_ , is that there is
no motivation to spend it. Inflation actually has a very important purpose -
it keeps the currency liquid, if you hoard money you lose money. From the
Average Joe's inflation might seem like a bad thing but the truth is what
worth is a currency is nobody is willing to exchange it? "Money" is a lay-mans
term that isn't really used by professionals within the economic industries;
in nearly all cases it is referred to as "liquid". Liquids are supposed to
flow and it is a very important feature of currency.

The current hyperdeflation is encouraging people to hoard their bitcoins;
which means that they are behaving a lot more like a commodity - and there-in
lies the problem: they are deluding people. Not only do they have the word
"coin" in their name but they also fall under the category of
"cryptocurrency".

The problem is that people are so firm in their belief that inflation is one
way for a government to screw them; that they will change their argument (no,
it's a commodity vs. no, it's a currency) depending on which argument you
present to them.

What we need a cryptocurrency that penalizes hoarding; or at the very least in
some way encourages spending (or exchanging).

Let's say that hypothetically I don't know what I am talking about; and that
hypothetically bitcoin becomes a universal currency as many would have it (all
other currencies are abolished). Now consider the hypothetical scenario where
you are selling property and have a family to feed at home. You spend your day
showing people properties and nobody buys - why? Because their currency will
be worth a lot more tomorrow than the fixed asset you are offering. The
economy will collapse.

------
jMyles
My confidence in bitcoin has been substantially increased after reading this
article. It is becoming increasingly easy to see through the bizarre thought
patterns of its doubters.

------
mrb
This article is posted on DealBook, a financial-news website founded by Andrew
Ross Sorkin [1]. This person has always had an anti-Bitcoin stance, probably
because he clearly does not understand Bitcoin at all (see him interview the
Winklevoss twins about Bitcoin:
[http://www.youtube.com/watch?v=1oGuKEazS5o](http://www.youtube.com/watch?v=1oGuKEazS5o)
) and people tend to be dubious or scared by something they don't understand.

[1]
[http://en.wikipedia.org/wiki/Andrew_Ross_Sorkin](http://en.wikipedia.org/wiki/Andrew_Ross_Sorkin)

------
novalis78
Articles like this are actually quite revealing. It's incredibly interesting
to watch "experts" comment on bitcoin as they study it, now, for the first
time and have to think about it. Like a lot of people my initial impression
was that of scam (it lasted for three hours) then realization of the ingenious
concept with the thought that "this will not survive long enough to become
what it is intended for". So I kept selling most of the coins I mined all
throughout 2012. Three "bubble pops" later, I could see my
"confidence"/"trust" in bitcoin shift. It really has to go through these
intense run-ups and crashes to actually prove itself. If it continous to, it
will appear as an extremely trustworthy long-term store of value, independent
of any central agency and as difficult to slay as file sharing. At which point
more people will pile in, to protect their wealth, again, long-term. Money
they could afford to lose, initially. What we might be observing could be a
Kurzweilian visualization of an exponential graph similar to technological
break-throughs from the Dark Ages to the Modern Age. Bitcoin's wealth transfer
and processing network seems to be on a similar level (monetary internet)
regarding markets, finances and currency. If it succeeds a whole lot of
middle-man industries will meet their demise and capital allocation would be
supercharged. The price of bitcoin just reflects that realization on a
(global) level.

~~~
JoeAltmaier
I don't get that; runs and crashes means your confidence is improved; that
bitcoins have 'proved themselves'? I would argue just the opposite. No
responsible financial counselor would recommend something as volatile as
bitcoins; no business can survive the busts ("Just wait a few months Mr
Vendor; my money will be worth something again then I promise!")

So its used by - who? Speculators and suckers?

~~~
novalis78
I agree with you. Let me explain - I think you have to separate bitcoin, the
protocol and bitcoins, the currency. Secondly, if you separate the two
functions of bitcoins as a storage of value and bitcoins as a currency, it
might make more sense. After each of the last three big crashes, the price
built a new base at twice the initial level before the bust and then beat the
original high in a relatively short amount of time. This has been going on for
3 years now. If I want to save some money that I can afford to lose
potentially, with the main rational that it cannot be inflated long term and
can "forget" about (so I don't lose sleep over the fluctuations) now I found a
secure home for capital that I don't want to touch. It took a long time for me
to develop that confidence (I daytraded in the past, esp. penny stocks, so
"supernovas" are not something new). Now, if (the big question of course)
bitcoin as a currency continues to be adopted, a bitcoin will be unaffordable
and most trading will be in the μBTC etc range we could see it stabilize due
to the sheer volume of participants. However, even if that would never be the
case, bitcoin as a protocol could lead to innovations in the entire supply
chain that make transactions of raw material all the way up to product pricing
instantaneous.

~~~
JoeAltmaier
Confidence is a funny word for gambling. Secure an odd choice for something
defined as volatile. If you need money and your bitcoin savings is worthless,
you lose.

Volume of participants has had no stabilizing effect on bitcoins. They suffer
in spades the destabilizing properties of real currency, with no corresponding
'federal reserve' able to (try to) control fluctuations.

------
makerops
"After all, no bank or bitcoin-emitter can be as public-minded as a
government, and no private power can raise taxes or pass laws to unwind
monetary excesses."

I am not an expert by any stretch of the imagination, but this seems like a
big point in the authors argument.

Isn't the removal of this flaw baked into bitcoin by it's nature?

" Besides, if bitcoin ever really started to take off, governments would
either ban it or take over the system."

Isn't this pretty damn hard as well?

~~~
hacknat
_Isn 't the removal of this flaw baked into bitcoin by it's nature?_

No, it's not. Bitcoin isn't backed by any political will of any kind. It is a
sheer market. That is the author's main point. That since it is money not
backed by the, hopefully, benevolent will of a state it will be subject to the
whims of market makers or the panic of the crowd. I think the author of the
article is quite correct in making this point.

History has repeatedly shown that the mercy of the state is better than the
chaos of the market, at least over the long term. Yes, every once in a while
the state will take away a punch bowl that it didn't need to take away, but
that doesn't mean that their overall goals aren't worthwhile. More rarely the
state clamps down too hard, but history shows that in these instances the
market's ability to correct an overbearing state has greater celerity than the
body politic's ability to overcome the enormous chaos of a completely free
market.

History isn't even necessary in the argument though. We all get to vote.
Bitcoin has already failed as a currency. It is subject to incredible
moodiness and instability, which are the characteristics of a very poor
currency indeed. Currency, in a well functioning economy, is supposed to be
the most stable and predictable security that one can invest their wealth; in
theory, it is not even supposed to be a security. Bitcoin may have made some
people wealthy, but I'm not going to trust all of my wealth in it like I would
American dollars.

~~~
Peaker
> Bitcoin has already failed as a currency. It is subject to incredible
> moodiness and instability, which are the characteristics of a very poor
> currency indeed

Bitcoin has to climb up to a stable value, once.

The idea is that it will be stable once it did.

------
yetanotherphd
That was a horrible article. The culmination of the author's intellectual
laziness is the paragraph

"Of course, the global monetary system has suffered from appalling management
in recent years. The authorities, especially in the United States, first
allowed banks to act almost as if they were in a right-money world, lending
and speculating wildly. That led to a typical right-money disaster — a sudden
loss of trust and the failure of leading institutions."

The Federal Reserve has the ability to set interest rates in the way it deems
best for the economy. There is nothing "right wing" about the way they set
very low interest rates before the financial crisis. There is no way that
private money could ever replicate the kind of economic stimulus that the
Federal Reserve was able to engage in.

Anyway I don't believe that bitcoin will become much larger (or smaller) than
it is now. Not for any deep reason, but because it is inconvenient, and
commercial banks are already very good at what they do. Hopefully it will
provide enough of a shock to the system to cause a reform in the current
system of merchant fees for credit cards, which are an aberration that should
have never existed in the first place.

------
gnerd
Why did the author of that article have a different title when the same
article was posted on the Reuters blog? [1] Over there the article headline
is: "Bitcoin is a step back not forward"

Is that his choice or the editors?

[1] [http://blogs.reuters.com/edward-hadas/2013/11/27/edward-
hada...](http://blogs.reuters.com/edward-hadas/2013/11/27/edward-hadas-
bitcoin-is-a-step-back-not-forward/)

~~~
tptacek
The New York Times editors write all the headlines, even for op-eds.

------
moocowduckquack
A Prediction: All Currencies Are Doomed to Fail _(but probably not for a
while)_

------
mchusma
I frankly just thought this was poorly written. I tried to do a tl;dr, but
found it hard. Here is my best shot:

1) "currencies...increase the efficiency of barter" 2) "Barter played a tiny
role in all premodern economies" 3) governments have tended to issue
currencies 4) Bitcoin is inferior because it lacks "the backing of a political
authority" or the ability to "raise taxes or pass laws to unwind monetary
excesses" 5) private money generally has uncertain value and legal status 6)
government might shut Bitcoin down 7) Bitcoin is a part of "Right Wing Money"
8) all effective money is "left money" and "state backed. The recent banking
system is a part of "Right Wing Money". 9) Bitcoin is for criminals and
speculators

I think there have been much more intelligent and nuanced opinions on why
Bitcoin might fail, I wouldn't put this on the list.

------
shanac
Fun fact: The US did have competitive currencies for a bit, during the
Antebellum and Civil War period.

[http://www.dartmouth.edu/~jshambau/Papers/AntebellumExchRtsJ...](http://www.dartmouth.edu/~jshambau/Papers/AntebellumExchRtsJCS-5-2005.pdf)

There were a lot of bank busts and currency scares.

~~~
interstitial
Bring up historic facts in a bitcoin discussion is useless. John Law is always
a hero for awhile.

------
conception
I think this guy doesn't get that money is just an efficient way to trade
debt. The reason other currencies have failed is that they haven't been as
efficient, and also have been illegal. Crytocurrency may end up being more
efficient. Especially for international transactions.

~~~
conception
Also, bitcoin is already -much- better at moving money around the world. 8
cents for a bitcoin transfer or the 45 dollar wire transfer?

------
etchalon
Here's what I'm constantly failing to understand.

In the tech sector, new things come along every day. We see new ideas,
approaches, left-field thinking on a steady, almost predictable pace.

We also see that, more often than not, the very first version of the thing is
not the thing that lasts. It's a proof. It mostly works. There are problems.
It sticks around for a bit, till someone else comes up with a better idea,
implementation, etc, which takes hold. And then something else replaces that.

If you believe Bitcoin is Money 2.0, that it is destined to replace the USD,
or other global currencies, you clearly accept that a newer, better thing is
destined to replace an old flawed thing.

If you don't believe in Bitcoin, you cannot deny that while IT might not be
the thing to take down the USD, something else might.

So why does every article treat Bitcoin as a yes/no proposition? Either it is
a moonshot success, or tulips? Either it changes the world and creates new
millionaires, or it joins the pantheon of quick money schemes that tempted and
fooled so many in the past?

I realize we're talking technology here, but it doesn't have to be binary.

Bitcoin, the software, solved a few problems thought unsolvable. It showed
that you can decentralize the ledger, with some amount of stability. It showed
you can solve the double-spend problem, and create some guarantee of
transactional consistency.

But bitcoin has a few obvious issues. It is illiquid, and deflationary. It is
slow (unless you just pretend its fast and hope for the best). It is only
basically anonymous, though not foolproof. It is easy to steal, and easy to
destroy.

Some of these problems are solvable, and some are inherent to BTC itself and
cannot be removed from BTC.

But that's not to say something can't come along with all the good properties
of BTC and fewer of the bad. Or none of the bad. That's not to say there's not
some kid sitting at a computer thinking of a better way.

------
geoka9
Bitcoin may have already failed as a currency. However I think it has
spectacularly succeeded as a store of value - an alternative to gold, if you
will. It has all the benefits of gold, none of its problems (bulk), and some
brilliant advantages: ease of handling/transportation/transferring (maybe
transferring it is too easy - make an unlucky typo and your savings are most
probably lost for good - but that's a side effect of its efficiency).

FWIW, unless governments start to intervene by outright banning it, I suspect
Bitcoin will first become the ultimate storage of value, then its price will
become less volatile and with time stable enough to start using it as a
currency.

~~~
dinkumthinkum
Well gold has this one minor benefit test it is intrinsically valuable ...
That and you don't have to. A nerd to understand how to use it.

~~~
geoka9
> gold has this one minor benefit test it is intrinsically valuable

You can't explain the high price of gold merely by its intrinsic value. OK,
it's shiny, but there are other sniny metals. It can be used in electronics,
or as filling/crown material - but it was valuable before people started using
it for that. So much for the intrinsic value.

So it must be something else that makes gold as valuable as it has always
been. It's rare, fungible, divisible, portable - an ideal medium for storing
value.

Well, bitcoin is all those things and more.

~~~
dinkumthinkum
You just waved your hands around a little. Gold has intrinsic value. You say
other metals are shiny ... Well ... wow ... They have intrinsic value as well.

------
stevedekorte
The points of the article summarized:

1) money must come from the state (because I say so)

2) bitcoin is bad because it appeals to "right wing" people and I'm
(presumably) left wing (my enemy's friend is my enemy?)

3) free markets caused the financial crisis (not massive gov money printing
and trillions in implicit backing of credit markets) so free market money must
also be bad

4) the value of bitcoin disappears if people loose trust but this could never
happen to a gov currency (even though it happens several times a year with
fiat currencies around the world)

5) fiat is fine so we don't need a replacement (as long as we ignore the
trillions in debt transfer from the bankrupt banks to the bankrupt
governments)

------
swswsw
Excerpt from the article: "The developers of bitcoin are trying to show that
money can be successfully privatized."

\-- Not really. Bitcoin is open sourced. They did not try to privatize
bitcoin.

Excerpt from the article: "The currency’s issuer is an unknown computer
programmer"

\-- No, bitcoin is not issued by Satoshi Nakamoto in the sense that cash is
printed by the government. The currency is generated by mining, which can be
participated by anyone with the right equipment.

I do not have a better crystal ball than anyone here, but the article's author
made a mistake in trying to shoehorn bitcoin into his own concept of currency.

------
natmaster
Lol, a Keynsian claiming Hayek is an idealist. NYTime is the new Onion, right?

------
pmarca
Oh no! The New York Times says a new technology is doomed! Quick, do the
opposite of whatever they say!

------
relet
As I see it, both governments (states) and the bitcoin algorithm are
mechanisms that are endorsed by their community to simplify a control problem.

Governments have more mechanisms to adapt to changes in public opinion, while
bitcoin deals with a more specific problem. If bitcoin loses endorsement, it
will be replaced (traded) for other goods, probably the next generation
cryptocurrency. The same goes for governments that don't adapt, and their
currencies.

~~~
blahbl4hblahtoo
I really like that description.

------
j1z0
The three main reasons the article gives for why bit coin will fail:

"Its value is uncertain, its legal status is unclear, and it could easily
become valueless if users lose faith"

Is this not also true of state run currency? Have we not seen massive
deflation during the great depression, in Israel, in Russian and in many other
part of the world?

The legal status is an interesting one, but given that the feds got some
31million (and rising) USD worth of BTC from the Silk Road seizure I doubt
they will make BTC illegal.... But it could happen in the future.

Loosing faith, well believe it or not this is true of all currencies. That is
why it's called Fiat, there is nothing other than faith behind currencies.

So really the only issue is the legality, which basically translates into
government regulation, which is what we already have for "state run
currencies", so at worst BTC becomes regulated by the state and becomes more
of a "state run currency". In some views I guess that is failing, but that
means that worst case it will end up like cash but with a lot of technical
benefits.

I think the real issue with BTC is deflation, and that will probably continue
for a long time. At least until all the BTC are out, if not for much longer.

------
atmosx
At the beginning I thought so too, that BTC is doomed in the long run. But
after the spike prices and a careful re-reading the only really thing that
still puzzles me is the D. Ron and A. Shamir paper[1] released in 2012. If
this paper holds true then a handful of early adopters holding more than 95%
(the paper states 98%) of the currency, will and can bring the currency up and
down overnight and their extremely powerful position in the BTC market cannot
be challenged.

Bitcoin has two qualities that are unique:

1) Extremely high degree of privacy (you can put 50.000.000 USD worth of USD
in a USB stick and pass through 7 airports, or print them in an A4 page
encrypted with GPG, and no one will know).

2) Transaction speed: You can send money from Iceland to China (even huge
amounts) very quickly (less than 1 hour), with no third party being involved.

There will be always a market to request this kind of qualities. However if
any of those two qualities goes missing for whatever reason it is doomed.
Another way to kill BTC would be to create another crypto-currency that have
additional features and would kill BTC on the spot.

[1] [http://eprint.iacr.org/2012/584.pdf](http://eprint.iacr.org/2012/584.pdf)

~~~
geoka9
> Extremely high degree of privacy (you can put 50.000.000 USD worth of USD in
> a USB stick and pass through 7 airports, or print them in an A4 page
> encrypted with GPG, and no one will know).

Even better, you can keep those millions in your head, using a deterministic
wallet (google "brainwallet").

In short, you keep a password in your head, and when you are ready to spend,
all you need is access to an Internet-connected device - using that password
you can reconstruct your private keys and import them into a bitcoin client.

------
smsm42
I love how NYT puts it - private money is bad, and if it is not, governments
would kill it it anyway, by whatever means necessary. Thus, private money is
bad, and government will be doing you a favor by killing it by whatever means
necessary. Oh yes, and there's no private money so it's clearly impossible in
reality to have it. Which proves again the government is right to kill it.

------
sparkie
> They will fail, because money that is not issued by governments is always
> doomed to failure.

Stopped reading right there. Does this author actually believe that money is
issued by governments?

Why do you think your notes have "Bank of England" or "Federal Reserve", or
whatnot written on them?

It's because they're issued by those _private_ institutions. They're not
government bodies.

Of course, the government has the alleged power to regulate those private
institutions, but in reality it works the other way - those private
institutions have the real leverage to regulate governments.

It's because the governments are in debt to the private institutions that they
can force the government to back their monopoly issuance of currency, and of
course, they can force the government to privatize publicly owned assets to
pay back the debts.

Once you see past the very basic myth that "governments issue money", you
quickly realize why politics is theatre, and any chance of change to the
status quo won't happen through government. Bitcoin is the game changer.

------
eliwjones
Bitcoin is "doomed" to fail (as a currency) by the simple fact that the supply
is capped at 21 million.

This relegates it to the status as a "virtual collectible" (as someone so
humorously put it).

Maybe Bitcoin 2.0 will be smart and remove a cap (or build in the ability to
allow itself to float).. but Bitcoin as it is isn't flexible enough.

~~~
gress
Bitcoins are divisible to 8 decimal places. Why are more needed?

~~~
ulvund
They are infinitely divisible

~~~
gress
That isn't what the documents on the web say:
[https://bitcointalk.org/index.php?topic=4816.0](https://bitcointalk.org/index.php?topic=4816.0)

What are you basing your statement on?

------
brentweaver
I think BC is a fantastic platform--I am sure the currency will see some
massive spikes (we are on it) and bigger troughs--but to make the assertion
that it will completely fail is a bit ignorant. The only downside I see right
now is the valuation of goods pretty much has to keep a real-time pricing
engine in place for anyone that wants to take BC. Much like in countries that
experience super high inflation or deflation...they have to first look up the
value of the currency before they can complete a transaction which is a total
pain. Right now there isn't much risk from the perspective of a vendor b/c the
value of the currency keeps going up compared to other currencies. The second
that trend goes the other way, me as a vendor might not be so interested in
taking BC anymore unless it's totally liquid and I can sell it on the market
instantaneously.

------
stevedekorte
The points of the article summarized: 1) money must come from the state
(because I say so) 2) bitcoin is bad because it appeals to "right wing" people
and I'm (presumably) left wing (my enemies friend is my enemy?) 3) again,
money must come from the state (because I say so) 4) free markets caused the
financial crisis (not massive gov money printing and trillions in implicit
backing of credit markets) so free market money must also be bad 5) the value
of bitcoin disappears if people loose trust but this could never happen to a
gov currency (even though it happens several times a year with fiat currencies
around the world) 6) fiat is fine so we don't need any replacement (as long as
we ignore the trillions in debt transfer from the bankrupt banks to the
bankrupt governments)

------
snowwrestler
I think Bitcoin will succeed like gold has succeeded--as a highly liquid
tradable commodity, which can be used for transactions as a form of barter.
It's already succeeding in this way.

It won't succeed as a currency because it can't maintain a stable value--
again, just like gold.

~~~
ericb
So your choices are to maintain cash resertves in USD and take a guaranteed 2%
inflation loss on the chin, or keep it in Bitcoin with unpredictable, but
upward trending movement (as coins are removed from the pool with loss, death,
etc.). I'm not sure that decision is so clear-cut.

~~~
djur
Most people don't keep significant cash reserves, and that's a good thing.
Dollars that people sit on are lazy dollars. At the very least, you can sink
them in treasury bonds and the US government will put them to use -- but that
debt is still denominated in dollars.

At best, Bitcoin will end up as yet another option for investment. The
deflationary trend and lack of legal tender status make it a total nonstarter
as a currency.

------
bsbechtel
The author's argument goes like this: Bitcoin is not backed by The State. The
State makes currency. The State is all powerful. I am not capable of
conceptualizing a currency that is not backed by an all powerful state,
therefore Bitcoin is doomed to fail.

Terrible argument.

------
bushido
Bitcoin is revolutionary. THAT is most likely true.

Is it doomed to fail? Perhaps it is, but things are not quite as grim.

Here is what is likely to happen as a result of bitcoin: 1\. The future of
banking transaction fees is bleak - The current financial systems will get
threatened and adapt. Here bitcoin will succeed. 2\. Bitcoin is used as proof
of concept and paves the way for a world currency, think euro but global.

The two points above are definitely wins. If you have any problems with those
playing out, its likely you have the same concerns about bitcoin and just
haven't realized it yet.

Here is what would likely happen to bitcoin v1, it will fail to become a real
currency.

Its _currently_ morphing into a speculative store of value. I'd like to say
its like tulips, but I'd be wrong, as it is definitely more useful than
tulips. On the speculation front it may play out like the tulip mania/bubble,
but I hope I'm wrong about that.

The reason for it to fail as a currency is the very reason for the spike in
interest at the moment. Exchange rates seem to be soaring and may continue to
soar which would make people vary of buying some thing worth $1000 USD for
1btc if there is a possibility that deferring a purchase by a couple of days
could offer a notion discount of x% from the hope of the value of btc
increasing. If you could wait a few days for the purchase and buy the $1000
item for 0.8btc, who wouldn't wait?

On the flip-side, if you bought 1btc for $1000 to buy something but the value
of btc suffered a temporary squeeze to the effect that 1btc = $800, hence the
same item now costs you 1.25btc or 25% premium to what you were willing to
pay. Hence who would be willing to pay extra if you were sure the value of btc
would rise?

This applies to all commercial transactions. In 90%+ of cases people will
likely defer spending btc unless the value was at the same level +/\- 5% as
their purchase price.

Bitcoin as a currency/for commerce will leave every consumer in a constant
state of buyers remorse and THAT will be the real reason for its failure.

------
jimmcslim
With all the news about the meteoric rise in the value of BTC and many folks
presumably sitting on a huge paper profit, I haven't seen (or just haven't be
looking hard enough) for stories along the lines of: 'I sold my modest
holdings of BTC and was able to repay my mortgage; I don't have enough money
to stop working but at least I fully own my home and can work four days a week
instead of five and spend a bit more time with the kids, etc, etc, etc'.

Or is the unreported reality of BTC is that it is just too difficult to
cashout in a big way due to liquidity/transaction fees/general sketchyness of
exchanges that will transfer BTC to hard currency?

~~~
gwern
You can find most of those stories on /r/Bitcoin. Off the top of my head: the
Norwegian apartment, the asshole, the nurse, & the WalMart clerk. (And a few
counter-stories like the Brooklyn embezzler who has taken a $1m inheritance
and squandered it down to ~$300k by astonishingly bad Bitcoin trading over the
past year.)

------
chmike
Gold and silver etc. are all alternative "money" "loosely" coupled with
dollars. Basically Bitcoin is not different form that.

The reason I believe bitcoin will continue to exist and even be supported by
states like USA is because transactions are public and traceable. The identity
of wallet owner can sometimes even be determined through that.

I guess Banks feel threaten because this currency is not (yet) ~ 80% depth. It
is so by design. The depth bubble grown by banks and countries will soon or
later burst. Get ready for that moment. I'm not sure that bitcoin is the best
placement, but in an placement diversification strategy, this would definitely
be one of my picks.

------
intenex
"They will fail, because money that is not issued by governments is always
doomed to failure. Money is inevitably a tool of the state."

How about gold? Bitcoin can just as easily be seen as a limited commodity as
as currency. It's even mined :).

~~~
djur
Gold has intrinsic value. You can use it to make beautiful things, and it
serves as a display of wealth. That value will always be present in the
absence of a state, although it would be substantially less without a state.

Bitcoin has no intrinsic value. It's a financial instrument.

------
jkarni
One thing I never quite understood, but haven't really heard mentioned, is
what makes _this instance_ of a digital currency special. If I were to start
another pool of bitcoins, with it's own mining etc. (like say, litecoin, but
not necessarily technologically different from bitcoins) is the only
disadvantage, from the perspective of adoption, that it wasn't the original,
and is a little less prominent?

If so, I can empathize with the "losing faith" perspective. It only takes the
tiniest bit of squinting to see bitcoins not at fundamentally limited, and
therefore currency-worthy, but as completely unlimited.

~~~
iand
The computing power directed at bitcoin is already huge. You would need to
persuade those miners (who also verify transactions don't forget) to switch to
your new coin. If they stop mining bitcoins then they fall behind their
competitors. They then have to swallow the risk of mining a new coin that has
no users yet.

~~~
jkarni
But presumably the computing cost would be much lower for the new coin, since
it'd be earlier on in it's mining history. Who knows where the respective
expected values stabilize.

Also, what if the new coin has some minor technical improvement? How do we
know that won't outweight the established network effects?

~~~
iand
We don't know any of those things. That's why it would be higher risk to start
mining it. The rewards might be huge or they might be nil.

------
dnautics
_They will fail, because money that is not issued by governments is always
doomed to failure._

Yes, but money issued by governments is also doomed to failure, with a failure
rate modestly higher than the failure rate of governments.

------
yafujifide
I wonder if he would change his mind if it turned out the NSA developed
bitcoin.

------
return0
Another prediction: In the future, after bitcoin is abandoned, a world-wide
organization will be set up to introduce a cryptocurrency that does not not
involve mining, which allows inflation.

------
nivertech
At dot-com time, everybody said "this is a new economy, old rules don't
apply". Same in this thread "Bitcoin is a new technology, old rules don't
apply" ...

~~~
zik
Not at all. Bitcoin's value will continue to increase while the new technology
is adopted using the old rule of supply and demand. Then it'll stabilise. No
new rules are needed.

------
Zigurd
The author is mostly the blind pig bumping into aspects of bitcoin without
seeing them for what they are. But in the end he stumbles across the
proverbial truffle: _" Bitcoin appeals because governments are not fully
living up to the responsibility that comes with state-sponsored money.
Bitcoin, or something like it, will thrive until the authorities do better."_

And when, in the time of QE, does he expect that it will come to pass that _"
authorities do better?"_

------
tehwalrus
I like the idea of the Dollar as "left[-wing] money", that tickled me.

However, the author rather fails to explain his reasoning about the social
entanglement of money, referring us instead to a book which is £10.34 in
paperback or £9.31 on Kindle[1] (a rather uneconomic proposition, if you ask
me.)

[1] [http://www.amazon.co.uk/Debt-The-First-000-Years-
ebook/dp/B0...](http://www.amazon.co.uk/Debt-The-First-000-Years-
ebook/dp/B00513DGIO)

------
27182818284
It probably will, _but that doesn 't matter_

Other crypto-currencies already exist and there will only be more. Paul Graham
was right when he pointed out that "hackers love it"—that key point means
people are going to continue to evolve the general idea. If deflation proves
to always be a serious problem, I'm sure hackers will build in something to
solve that. Anonymity is a problem, so Zerocoin is tackling that. And Litecoin
tackles other problems.

------
jfoster
Like a startup, Bitcoin failing is the expected default. I think it will fail,
too. What makes it notable is that it's also got unusually high chances of
succeeding.

------
fthssht
Right vs left. Somehow its all politics and its not on his side and therefore
doomed to fail. Maybe its neither and the other is an ideologue and imbecile.

------
jaekwon
Just as there are lobbyists in Washing DC, and think-tanks that survey popular
opinion to sway the people in a certain direction (e.g. why do you think the
rich are getting richer; see Koch brothers), there are those who rely and
profit from tax revenue who do not wish to see the Bitcoin experiment succeed.
Just as Bitcoiners lobby for bitcoin, others will lobby against it.

I'm not Rothbard and I can't prove to you that we will be better off with an
unregulated decentralized currency. But I do want to see the experiment
through, for the alternative is worst from a point of view of my morality --
certain members in government shutting down the Bitcoin experiment by decree,
because it is inconvenient for them.

They will cite history and circumstances to justify their centralized control
of a currency and the need for income taxes, but I also know alternative lines
of reasoning that negate them. What I do know for sure is that control over
currency gives near-absolute power to those who handle the levers, and I would
imagine that such power is not something you simply abdicate.

There are aspects of the economy that does require a policing authority, in
such areas as environmental sustainability to prevent a tragedy of the
commons. A growing income disparity between the wealthy <1% and the
impoverished majority is also another tragedy of the commons, but perhaps the
current way of dealing with these issues aren't actually helping. I suspect
that a better way to deal with these issues is more competition amongst
alternative economic forces, and for that we need a diaspora of currencies;
currency and economy is what helps people converge upon a stable state
solution in a distributed fashion. It's a heck of a tool, and we'd be damned
if we don't explore its uses.

I'm not sure what the future holds for us in terms of governance structures.
Bitcoin shows us that not everything need be "privatized" as the old
libertarians had predicted. I think we're just now entering the beginning of
the end for government as we know it. It's going to be exciting, wrought with
pain, and probably unfathomably rewarding.

All that I ask is that any time you encounter an argument that assumes that
taxes must be paid to fund a centralized government that controls the issuance
of currency (for the good of the people), think twice before nodding your
head. Our technology is new and we don't yet know what is possible.

------
ta_goomast
There is so much inaccuracy and fuzziness in the first paragraph that the
author seems to ignore more than he knows about the subject. State and
government are not the same thing, money and currency neither, bitcoin is not
a privately issued and is not web based.

With such a sensationalist title, I'm not surprised this article is much
balooney but I wonder how it got to HN frontpage in the first place.

------
nate_martin
In so many of these BTC articles the authors spend the first few paragraphs
explaining bitcoin to readers who don't know what it is. They often get a lot
of the basic facts about the currency wrong (ex: anonymity of bitcoin in this
article). Its honestly hard to take any of this seriously if these authors
can't demonstrate that they actually understand the currency.

------
diego_moita
> truly private money is an inferior alternative to the money that comes with
> the backing of a political authority.

By the Gresham's law [1] (i.e.: "Bad money drives out good") being an
"inferior money" is actually a good thing.

[1]
[http://en.wikipedia.org/wiki/Gresham%27s_law](http://en.wikipedia.org/wiki/Gresham%27s_law)

------
cLeEOGPw
So basically what the writer is saying is that bitcoin will fail, because
"bitcoin developers are trying to privatize money". The writer is either
really incompetent or jumping in the bitcoin hype train with controversial
articles to get cheap traffic. Adding comment so it get's penalized, since as
I understand comments here work like downvotes.

------
bitops
Disclaimer right up front: I personally doubt that Bitcoin will be a long-term
success. I fall into the camp of people who believe it is not a mature enough
technology, unproven despite the hype. It is much too volatile to be any good
other than as a risky investment, though if you time it right, you could stand
to make a fair profit at the moment.

What I do think is very interesting about Bitcoin is that it is a harbinger of
things to come. It won't replace greenbacks anytime soon, but I think it's an
indicator of where the world is heading.

I believe the global and historical trends we are seeing right now is away
from traditional authorities acting as monoliths, in favor of empowered
individuals. We are most likely at the very beginning of the trend - I doubt
anyone reading this board in 2013 will be alive to see the transformation
completed. But we will be alive to see some very interesting changes.
Generally speaking, all centralized authorities, be they monetary, political,
technological, etc. are fracturing in favor of empowered individual actors.
That poses challenges as well as opportunities.

For example: consider a technology like Square coupled with a store of value
such as Bitcoin. (In this example, the terms "Square" and "Bitcoin" are just
placeholder values for mechanisms and tools). Oversimplifying greatly, if we
take these technologies to their logical extreme, we have the tools for an
individual to completely bypass banks and traditional governments. You have
some goods that I want, I have some Bitcoins, we do a point-to-point transfer;
you get the money, I get the donut, end of transaction. Truly savvy users in
this system will have their own way of transmitting the money from themselves
to the merchant. I'll choose to trust someone like Square to do it safely and
securely for a nominal fee.

Whether or not you agree with the mechanics of how this happens isn't really
the point. The point is to show that we are heading towards a future where two
individuals can transact freely without a middleman "getting in the way." For
the purposes of this discussion, "getting in the way" means limiting the
freedoms of those individuals to transact as they please.

Of course, there are problems with this. If there are no rules, inevitably
someone will game the system or take advantage of someone else. That'll be
unpopular, and so people will seek to band together to transact in a network
of trust. The idea of a network of trust is important today, it's value will
only increase over time. I can't remember the exact term, but I read a
wonderful book some years ago called "Anarchy, State and Utopia" which dealt
with the philosophy around these types of issues (it's a pretty academic book,
but here's a link in you'd like to see -
[http://amzn.to/18883MU](http://amzn.to/18883MU) \- and yes, that's a kickback
link).

Boiling it down, the main argument I took away from that book was that, even
in a world where there are no "governments" as we're used to thinking about
them, we'll never achieve true 100% freedom because there'll always be those
who are stronger who take advantage of those weaker than themselves. For this
reason, people join together and form mini-states. Within those mini-states
and associations, rules will exist that people choose to live by, limiting
individual freedom to provide security.

I think people are right to be excited about Bitcoin, but I'd be cautious
about heralding any brave new world within the next 25 to 50 years.

~~~
psionski
These mini-states sound fun, I bet many more people would understand why
they're paying taxes when it's not called "taxes", but instead giving directly
to the person that needs help... Especially since you at least vaguely
recognize that person because he's one of the 150-200 or so members of your
mini-state.

------
Cort3z
Bitcoin won't fail because the criminal underground have accepted it. It is
the perfect way to pay for drugs or other illegal activities. No way to stop,
no way to trace. They reduce the risk of acting out their criminal affairs.
They no longer need to move money across boarders, thus basically halving the
risk of smuggling things.

Power to the people, right?

~~~
djur
Criminals are still going to need to convert their BTC to currency in order to
do most of the stuff they want to do with it. Enforcement agencies will just
have to keep track of large transactions where people are cashing out their
coins.

------
simbolit
about a year ago i wrote a paper on bitcoin for a university course entitled
"what is money?". my basic thesis regarding the future of btc is the
following: as bitcoin takes over the regulation of the money supply, nation
states and their central banks lose much of their agency in respect to
economic and fiscal policy. it is thus in the best interest of nation states
to restrict the use of bitcoin such that bitcoin will not take over to become
more important than national currencies.

since i wrote this bitcoins value has soared, but i still hold that opinion.
national governments might tolerate bitcoin as a sandbox playground for now,
but once it gets widely adopted and threatens national currencies, they can
choose between giving up vast economic and fiscal powers or restricting
bitcoin. i see no reason why they should choose the former.

did i convince you? want to get rid of your bitcoins? send me some:
17Dk1cugCynTaNdmQihF7tproJgyKyWiwr :-)

------
scotty79
One migh expect better researched article from someone who has a degree in
also mathematics:
[https://sites.google.com/site/edwardhadas/biography](https://sites.google.com/site/edwardhadas/biography)

I guess he focused more on philosophy (unfounded ramblings) and journalism in
his life.

------
DennisP
A while back I read about half of Graeber's book. He does argue strongly that
money arises from debt, not barter. He does _not_ argue that it must come from
the government, and in fact gives numerous examples of money arising
organically from private debt relationships. That's a major point of his book.

------
zik
This article rephrased: "Bitcoin doesn't fit with my limited world view so I
reject it wholeheartedly".

------
keyme
"and it could easily become valueless if users lose faith." About as easily as
religion losing its grip if believers lost faith... This can happen, but not
"easily". "An object at rest stays at rest and an object in motion stays in
motion", is what I'd like to think about this.

------
mpg33
Bitcoin very well could fail...I think Bitcoin's major threat is a better
cryptocurrency that could replace it.

------
jljljl
Just out of curiosity: Has anyone throughly debunked the deflation argument
against Bitcoin? Even the Bitcoin wiki seems fairly uncertain that deflation
will not be a problem with Bitcoin.

I still struggle with how a fixed money supply vs. a steadily growing economy
does not lead to deflation, and (eventually) hoarding.

~~~
SeanLuke
Quite to the contrary: I am fairly convinced deflation and currency
speculation will be the end of Bitcoin, because there is no central authority
which can stop it from happening.

~~~
UK-AL
There needs to be a feedback loop in cyptocurrencies. They look at the value
of the coins on a exchange, the adjusts the amount of money generated to keep
inflation at a constant 1% or 2% or whatever.

~~~
jljljl
This would actually make sense, and it's what some economists have proposed
instead of the Federal Reserve: an algorithm that targets a set inflation rate
or NGDP growth level.

------
LiweiZ
Anyway, Bitcoin could be a new way to "print" more money. I'm lack of
knowledge of it. But it must be interesting to know where the Bitcoin shown in
one's balance sheet. Asset? Or just another kind of fiat money? Either way,
Bitcoin provides more money on market. Hmmmmm

------
evertonfuller
Bitcoin is the Altavista to the Google.

------
brosco45
C'mon people! Let's give these guys a break. They had a vision for something
great and they tried their best to make it happen. Not every business
succeeds, in fact almost many fail. They had the guts, the vision and the
nerve to be great.

------
fragsworth
There is only one legitimate threat to Bitcoin that I can see - a world
government. I don't believe we have a world government now, but the conspiracy
theorist inside me warns otherwise.

~~~
junto
We aren't _that_ far off. Not in terms of the Star Trek conceptual world
government ideology, but more the hidden organisations that are sponsored by
corporations, such as those behind the Trans-Pacific Partnership (TPP).

If _they_ believe that Bitcoin places a threat upon their positions of power,
then Bitcoin will be crushed and if they can't crush it, they'll make it
illegal. Or they'll do it the German way, and they'll allow it, but tax it to
fuck.

------
laichzeit0
Bitcoin's been "failing" since I started buying Bitcoins in 2009. What's new?
It's a very impressive functioning and thriving failed technology I must add.

------
corobo
I said this back when bitcoin was $6 a pop. My face is well and truely egged
up and my bank account is thin around the hairline

------
oh_sigh
How will bitcoin survive when all coins are mined, and it starts costing real
money to perform transactions?

------
itchitawa
tl;dr It will fail because it will fail.

------
wellboy
< They will fail, because money that is not issued by governments is always
doomed to failure.

Like what? Gold?

------
retrogradeorbit
When the NYT runs an article like this, you know it's time to go long bitcoin.

------
basyt
Is Hadas going to be disappoint when Bitcoin touches 10k :P

------
riggins
doomed to fail?

only if there's no demand. And I think there's a floor on how low demand can
go that comes from the black market.

So I don't think its doomed to fail.

------
knodi
The problem is its current value. Its a bubble.

------
phaemon
This isn't a prediction. Unless you think Bitcoin will reverse entropy then of
course it's going to fail. _When_ is it going to fail?

------
gesman
Linkbait

------
michaelochurch
BitCoin has one egregious and obvious flaw. There is absolutely no defense
against the creation of a competing but otherwise identical cryptocurrency--
say, ZitCoin.

If I create my own dollar and claim it is backed by the U.S. Government, I am
breaking the law. Until a few decades ago, it was physically impossible to
create new gold (and now it is still prohibitively expensive-- and
radioactive).

There is nothing that stops someone from generating a new currency (ZitCoin)
with the same desirable properties, but without the obvious favoritism toward
early adopters. If one more can do it, then many can do it. I don't see why
this won't eventually drive the value of fixed-pool cryptocurrencies to (or
near) zero.

~~~
hcho
There's already LiteCoin and others which don't seem to undermine BitCoin. You
might need to reevaluate your position.

