
Bitcoin - A Primer [pdf] - debugunit
http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2013/cfldecember2013_317.pdf
======
jnbiche
>"...it is unlikely that [Bitcoin] will remain free of government
intervention, if only because the governance of the bitcoin code and network
is opaque and vulnerable."

And the traditional banking system is not opaque and vulnerable? Let us recall
that -- despite its vaunted regulatory system -- the banking system nearly
destroyed the global economy back in 2007, exactly because it was (and is)
opaque and vulnerable.

Sometimes, I wonder if people stop and think about what they're writing.

~~~
res0nat0r
I'll keep my life savings at Chase bank any day of the week over a Bitcoin
wallet thank you very much.

If my credit card is stolen or even used in a strange manner I get a phonecall
and a hold put on my account. How many people have recovered money from their
stolen Bitcoin wallets?

~~~
atom-morgan
We're in the early adoption phase so concerns like yours are understandable.
However, give it some time and the infrastructure and services will be built
to make Bitcoin a true competitor to Chase.

Just imagine back in the early days of the Internet when someone said, “I’ll
shop at the brick and mortar store down the street any day of the week over an
online store thank you very much.” It was a legitimate concern back then but
we moved past it to the point that it sounds ridiculous today. Just wait :)

~~~
cinquemb
I always wondered why people don't transfer to offline wallets as soon as the
trade goes through since most people are holding anyways.

On traditional banking, It also depends on where you live. I doubt people in
Cyprus, Zimbabwe, Venezuela and a couple other places feel that safe with
their life savings in banks post 2007. I know JPM recently put capital
controls on transfers greater than 50k outgoing from the US (but accepting
incoming), I wonder what that is all about.

~~~
qnr
Much of Bitcoin criticism (the chicagofed paper included) is _very_ western
centric and fails to take into account how utterly dysfunctional most
countries' money systems are.

In most countries in the world local currencies are unstable and subject to
the whim of politicans (would you keep your life savings in argentinian pesos?
Neither would Argentinians!), there are no easy ways to accept online
payments, there are no easy ways to transfer money to/from abroad etcetera. I
would argue that adopting Bitcoin is an immediate quality of life improvement
for a big portion of the world population, moreso when/if it value stabilizes.

------
jdmitch
_> What, in the end, is this new currency? It is a list of authorized
transactions, beginning with the creation of the unit by a miner, and ending
with the current owner._

Eloquent summary from a skeptic :)

------
schoen
The description of proof of work is a little bit confused: the author says
"The problem is difficult to solve, but the solution is easy to verify, as it
is difficult to factorize a very large number but easy to verify that a
proposed factorization is correct". If we read "as" as meaning "because"
rather than "akin to the way that", this is wrong: this problem is based on
hashes, not factorization.

------
pera
> At a minimum, one must wait ten minutes for the proposed transaction to be
> included in the block chain, and for large amounts it is customary to wait
> for six blocks, or one hour. These times are much slower than those to
> complete electronic retail transactions in most other currencies (e.g., a
> few seconds to charge a credit card either online or at a physical retail
> location)

the person who wrote this is a _senior economist_?

First of all, you don't must wait ten minutes or one hour, you wait iff you
want confirmations from other peers saying that the transaction is actually
included in the blockchain, more time you wait more confirmations you get. But
in the practice you only do this when you can't trust the other party, and
many times the other party is using an well-known online wallet that let you
use a green address
([https://en.bitcoin.it/wiki/Green_address](https://en.bitcoin.it/wiki/Green_address)).
So, you can have almost instant transactions with Bitcoin.

Actually credit cards don't takes just "a few seconds to charge", that's what
the final user thinks, but the reality is that it may take weeks to process
and transfer the money to the seller bank account. And also the level of fraud
with CC's is astounding; that's why we have to pay a lot of fees (I mean, CC's
intrinsically needs insurance). Here is a interesting series of articles about
CC: [http://boss.blogs.nytimes.com/2013/03/25/what-you-need-to-
kn...](http://boss.blogs.nytimes.com/2013/03/25/what-you-need-to-know-about-
credit-card-processing/)

By the way, with real cash the time for a transaction is equal to the time of
one party giving one or more bills to the other party + the other party
verifying if those bills aren't fake + (not always but usually) give the
change. :)

------
aric
> _Bitcoin is a fiduciary currency_

> _Fiduciary currencies—in contrast with commodity-based currencies (such as
> gold coins or bank notes redeemable in gold)—have no intrinsic value, and
> derive their value in exchange either from government fiat or from the
> belief that they may be accepted by someone else. They are inherently
> fragile; government orders can be ignored or doubted, and a currency that
> has value only because of the belief that it will have value may have no
> value at all (for instance, if I believe that no one will accept it, I will
> not accept it either)._

\--------------------------------

This article displays a lack of understanding of bitcoin, gold, and other
market-driven assets. Quantifying bitcoin in terms of computing power and
electricity is a clueless perspective. Conversely, the author doesn't attempt
to quantify gold by the same standards of its minimum measurable cost to
produce and mere industrial scope. Gold, in his mind, I suspect, is long
established and therefore above the same logic.

Bitcoin and gold are each greater than the sum of their cost to produce,
obviously. Demand drives this. Stability drives this. Intrinsic value is
contained in bitcoin and gold for varying reasons. If the author doesn't
appreciate (or understand) the intrinsic worth and applications of a peer-to-
peer, cryptographically-secure, fungible transactional system that's becoming
increasingly hard to defeat by any central authority and increasingly used in
the real world -- then so be it. Many people won't value that. Hell, some
people don't value the internet. Not valuing something doesn't mean it's not
valued. To me, gold is a pretty element and good for electronics. I don't seek
it out for fashion. Yet, I can fully appreciate why others do and why it's a
stable way to store value.

Bitcoin has intrinsic value. It is _not_ a "fiduciary currency." The
"currency" of it is far removed from any guarantee of value and far separate
from its functionality.

~~~
FellowTraveler
Regarding Bitcoins and gold, it’s important to keep in mind that neither has
“intrinsic” value.

Rather, both are valued by men for their unique properties.

Gold is: Divisible. Fungible. Value dense. (Scarce.) Recognizable. Durable.
Zero counter-party risk. Stable in supply, yet minable. Liquid. International.
Non-manipulatable. (Non-centralized.)

By comparison: Diamonds, while valuable, are NOT divisible, nor are they
fungible. Water, while valuable and divisible, is not value-dense enough to
compete with gold as a form of money, on the free market. Food, while
valuable, is not durable. Dollars, while liquid, do not represent zero-
counter-party-risk (rather, they are debt-based.) Dollars, while recognizable,
are not stable in supply (inflation is a worry). Dollars are also not minable.
(Production is available only to a monopoly cartel, versus gold, which anyone
can produce.) Food, which anyone can produce, is not liquid, especially in
comparison to dollars or gold. Dollars, while you can hold them in your
pocket, a board of bankers still has the power to reach into your pocket and
manipulate its value. (This is not the case with gold.) Soon it becomes very
clear that gold was never “declared” to be a form of money by any
“authorities” but rather, became money due to natural market forces.

If gold became money strictly due to natural market forces (as a result of its
unique properties) then clearly the only reason it has been supplanted by
dollars is due to artificial restraints imposed on the market by government
force. (Such as legal tender “laws”, tax “laws”, money laundering “laws”,
etc.)

Such forces must be constantly active, otherwise, natural market forces would
immediately resolve back to gold again as they have for thousands of years.

Now let’s consider Bitcoin’s unique properties:

Divisible. Fungible. Value dense. Recognizable. Durable. Zero counter-party
risk. Stable in supply, yet minable. Liquid. International. Non-manipulatable.
(Non-centralized.)

AS WELL AS: Non-confiscatable. Accounts cannot be frozen. Anonymity is
possible. Electronically transferrable.

As you can see, Bitcoin’s unique properties are similar to those of gold,
although it adds new properties due to its ethereal nature.

Those new properties (non-confiscatable, non-freezable, pseudonymous,
transferrable electronically) all serve to route-around the artificial forces
that are currently being used to supplant gold with the dollar. After all, the
various immoral, legal-tender legislation in place today uses the force of a
gun to impose fiat money onto an economy that would otherwise resolve to gold
by natural forces. That artificial force depends on the government’s collusion
with banks and their collective monopoly on the ability to issue, store,
freeze, confiscate, track, and transfer dollars.

~~~
aric
FellowTraveler, I love your work throughout the years, btw.

Yeah, as I noted, bitcoin is no less rational or irrational than gold for what
it is (or rather for what it's becoming). The whole "intrinsic value" debate
is a moot, endless point because both sides are equally arguable. Anything
clearly valued by others holds intrinsic value, I could argue. I could also
conversely say that its value is not derived intrinsically. However, in an
argument where gold is given the status of having intrinsic value, I'll gladly
argue that so too should bitcoin be given that status.

~~~
FellowTraveler
Agreed on this point.

Many statists get caught up in the argument about whether or not gold has
"intrinsic" value, which is why I like to redirect their focus to the concept
of substances with unique properties.

Because, whether or not value is "intrinsic", no one can disagree that
specific substances have specific properties, and that some substances have
properties more likely to be selected as currency by the Invisible Hand, than
others.

And thus it becomes undeniable that gold and Bitcoin have quite a bit in
common.

~~~
aric
Certainly. It's always exhausting to explain basic logic to people who grow up
believing that gold and the basic legal frameworks they're forced into at
birth are some how "divinely" deserving of high demand or of continuation
(through circular reasoning). Everything outside the scope of traditional
understanding becomes a joke to them.

------
impostervt
If anyone is looking to learn more about Bitcoin, I wrote a short eBook about
it.

[http://www.bitcoinbeginner.com](http://www.bitcoinbeginner.com)

If you'd like a copy, gratis, just send me an email - john@bitcoinbeginner.com

------
chatmasta
This is one of the better "non-technical" explanations I've seen. I especially
like his summary of the costs of Bitcoin: unique wallet identifiers impede
anonymity, and blockchain verification delays transactions by ten minutes.

Has anyone thought of making a service to eliminate the ten minute delay? You
would operate as a sort of Bitcoin credit agency, temporarily lending funds to
credible buyers. You could market this on the merchant side (receive money
instantly) or the purchaser side (send money instantly). Take a transaction
fee to cover the risk.

~~~
pdog
In reality, it takes more than a few seconds to charge a credit card.

Behind the scenes, the process of settling a credit card transaction after
committing to it can take days. This is known as clearing.

Accepting a credit card after a few seconds is more like accepting a Bitcoin
transaction as soon as you see it on the network (a 0-confirmation
transaction), which is what some merchants do.

~~~
geoffschmidt
Not exactly. Credit card authorization happens instantaneously, even though it
takes the money a while longer to actually move between accounts. And this is
separare from the chargeback mechanism, which can claw the money back after
it's actually moved.

A 0-confirmation bitcoin transaction is more like writing down someone's
credit card number and charging it later when you have access to your credit
card terminal, which was common (in the form of those carbon copy credit card
impressioning machines, which are why credit cards have raised digits) in the
days before ubiquitous mobile Internet.

~~~
qnr
If you accept a 0-confirmation transaction and listen the network for a few
seconds to ensure no double-spending transactions are broadcast, this is a
reasonably secure way to accept those small transactions where 10-minute delay
between blocks (resulting in a 5-minute average wait) would be a problem. Of
course, you'd still better wait for 6 confirmations if selling a car.

------
ChikkaChiChi
Few things in technology polarize my feelings like Bitcoin. I get it, I
respect what some people think it stands for, but I can't take it seriously.
Between the rampant speculation, wild fluctuations and the cult-like attitude
of its community, I have a hard time seeing it as anything legitimate.

Not to mention that it's success assures that there is a weird shadowy cabal
of people who end up insanely rich because they created it. Doesn't seem like
currency should work that way...

~~~
FellowTraveler
"Not to mention that it's success assures that there is a weird shadowy cabal
of people who end up insanely rich because they created it. Doesn't seem like
currency should work that way..."

===> You are referring to the U.S. Dollar?

~~~
ChikkaChiChi
No, because last time I checked the US Dollar wasn't printed out of the back
of some guy's house who came up with the idea.

~~~
FellowTraveler
You might want to check again.

~~~
ChikkaChiChi
Any credible sources you can point me in the direction of? I'm more than
willing to be wrong provided I learn something new.

~~~
FellowTraveler
At the bottom, the Federal Reserve consists of the member banks.

At the top, it consists of those regulating those banks.

Therefore the entity being regulated, is the same entity doing the regulating.

This Octopus has a monopoly -- unconstitutional and granted by government
force -- on the creation of our money supply. Anyone who competes with them in
this regard is imprisoned.

How is it that the act of counterfeiting -- an otherwise criminal act -- is
perfectly legal for one specific entity to commit?

North Korea is known for printing dollars; the only difference between them
and the Fed is that they do not charge us interest on those dollars.

------
en4bz
> "But once created, the bitcoin has no value other than in exchange, contrary
> to a gold coin."

How is this true. Gold has no use to the average person. The only real use for
gold is in semi-conductors. Other than that gold derives its worth from the
fact that is very scarce, like bitcoins.

~~~
davidkellis
Jewelry.

~~~
ogreyonder
Does that not prove his point? There is no functional requirement for gold in
jewelry now that so many cheap stainless alloys exist. Why not make jewelry
out of plastic?

The answer is: we, as a species, value gold far beyond its usefulness as a
metal.

Do you remember the article posted earlier this year about how DeBeers
__literally __invented the market for diamonds out of thin air? Before their
campaign, diamonds were relatively cheap and not considered to be that
special.

Like the dollar, or Euro, or gold, or even Bitcoin, the value of something is
set by those who desire it.

------
jstalin
If someone else is paying you to hold on to your money then you don't own that
money.

