
BitCon: Don't  - anu_gupta
http://market-ticker.org/akcs-www?post=219284
======
muraiki
I used to read Karl Denninger's blog a lot, but I haven't been focused too
much on economics lately. However, I'd like to quickly address a number of
topics brought up in the comments, as there seems to be a misunderstanding or
lack of understanding as to who he is and why he has any sort of authority to
speak on this topic.

Karl is not a trained economist in the sense having gone to school for it, but
he is a very intelligent investor who profited heavily during the 2008
recession. He does not keep his knowledge to himself; in fact, he was warning
of the collapse of Fannie Mae and the problems with Freddie Mac more than six
months prior to the events of 2008. He has consistently and accurately
predicted the results of various failures of US and international monetary
policy, which you can read and critique from his year end reviews.

Karl is an old school hacker, having run an ISP and developed a variety of
software. It was the sale of his ISP that allowed him to become a full time
investor.

Karl organized the first "tea party" style protest of Washington through the
organization Fed Up USA. He views inflation via money printing as taxation and
has been working for years to have those who illegally profited from fraud in
relation to the 2008 recession prosecuted.

His writing style can be a real pain to read, especially with his liberal use
of html tags... but it's well worth it.

~~~
tptacek
Can you point to some evidence of the accuracy of his predictions? It would be
interesting to see if they're of the "stopped clock" kind, or of the "shotgun
blast" sort, or if he really is canny about predicting monetary events.

There is another side, as there always is with everyone, to this assessment of
Karl Denninger. I ran (tech operations for) a popular ISP in Chicago too (mine
was EnterAct), and my experience with Denninger --- which I feel was
relatively extensive --- did not leave me looking to him for advice about
world affairs.

As I wrote elsewhere in the thread, the points in this blog post that seem
valid are also well-worn --- the lack of direct anonymity in Bitcoin, the fact
that Bitcoin is deflationary and lacks a central bank, the theoretical
possibility of double-spending --- and are also overwrought, written in jargon
that makes the points seem fresher than they are. The rest is a jumble of
idiosyncratic first-principles stuff, like the "entropy" of Bitcoin relative
to gold doubloons.

~~~
muraiki
Well, I'd say that calling Fannie Mae and Freddie Mac -- along with a major
recession to rival that of the Great Depression -- within a 6 month time
window was a pretty good prediction. The other predictions that I can recall
were related to that: the collapse of consumer credit availability, investment
money being driven to treasurys despite the US predicament, problems with
municipal bonds. He also warned about PIIGS pretty early, and that the
measures that were being taken would only result in kicking the can while
increasing the pain. But perhaps that's more of a stopped clock kind of
prediction.

As I said, I haven't followed him much lately, and he admits that he gets an F
in terms of predictions for 2012: <http://market-ticker.org/akcs-
www?post=215356>

Regarding the freshness of his views: his post was written to his current
audience (he runs a forum for investors). I don't think he had any idea this
would end up on HN, if he even knows what HN is!

~~~
tptacek
When did he "call" Fannie Mae? Let's judge the prediction.

When did he start warning about Italy, Spain, and Greece? What were his
warnings? Wasn't the disparity between the economies of Greece and of Germany
one of the original structural concerns about the Euro from the jump? Either
way, let's see if he started warning about "PIIGS" before or after Michael
Lewis wrote about Greece.

~~~
muraiki
I appreciate your desire to get an accurate analysis of his predictions;
however, I'm recalling from memory the sequence of events that happened and I
don't currently have the time to research all of these things for you.

Perhaps I shouldn't have said anything in the first place if I can't take the
time to piece together the sequence of events from all of the articles,
emails, and forum discussions that I had during the three year time period
that I followed his blog. I realize that the sequence of events is critical to
my endorsement of Karl's ability; as such, I apologize if I unintentionally
misled people to perceive him as an authority based off of a faulty
recollection of events from my memory.

Edit: I just realized that this post might sound very snarky, but I really
don't mean it that way at all. I should have contributed something better in
my initial post.

------
rlpb
I think there's a problem with his argument about the dealer and Joe. Joe will
have taken steps to make sure that his identity is disconnected from the BTC
with which he pays the dealer. This is the same as making sure that the dollar
bills he uses can't be traced back to him either (except that with Bitcoin
he'd need to take a little more care, like for example using an app that does
it for him).

The fact that there will be a permanent record that $100 was transacted is
neither here nor there. Even if the dealer gets caught later, nobody will be
able to link that to Joe. If the dealer confesses and implicates Joe, then
that would be the same as the dealer being caught with the $100 in cash and
implicating Joe. In both cases, Joe can just deny that he ever held the cash
(whether in dollars or BTCs).

I do take the author's point that arranging to make your money less traceable
is illegal under money laundering laws in most jurisdictions. But using
Bitcoin for illegal purposes is no different to using dollars for illegal
purposes; it's illegal either way.

Interestingly, since there's a record of all Bitcoin transactions, records of
your own transactions that you keep yourself can easily be corroborated with
the public record by the authorities. This can be done far more readily than
with cash. If you want to keep your financial transactions above board, then
perhaps Bitcoin is even better than cash for proving that you aren't
laundering money.

~~~
kevingadd
Is it possible to actually disconnect BTC from its source though? There will
always be a transaction history. The best it seems you can do is obfuscate its
source, by 'pooling' large quantities of BTC and then spreading them back out
to new destinations - but if anything, that just seems to me like it would
make ALL the resulting BTC suspect. It seems inevitable to me that if a
government decided bitcoins were being used for illicit purposes, they would
take all necessary steps to ensure that mechanisms for making them untraceable
at scale become illegal.

The currency doesn't actually seem like the problem here: $100 isn't much even
if it's in bitcoins, so how you spend it and where you get it doesn't matter
much in practice. The purchase is what matters, because if the purchase is
illegal that's what's putting you at risk no matter the amount of money.

Of course, once you start dealing in large amounts of currency - USD or BTC -
that's when you start increasing risk because governments keep an eye out for
large amounts of money being moved around. At that point, I think you'd have
reason to be concerned about people simply tracking your large transactions
towards their destination and using _that_ to identify you.

The upside of more robust record-keeping does seem like a potential upside,
though, I agree.

~~~
rlpb
> ...that just seems to me like it would make ALL the resulting BTC suspect.

True. All BTC that has come out of a mixer might be considered suspect. But if
you buy BTC for cash, should that be suspect? What if it turns out that the
BTC that you now consider yours has been through a mixer some time in the past
before it reached your hands?

Take the analogy to bank notes. Are all my bank notes suspect?

We accept this situation with cash. Why should Bitcoin be any different?

~~~
kevingadd
Any BTC<->cash exchange would either be illicit or have very clear, robust
records as required by the country that issues the cash currency. Isn't this
already the case with the services that let you exchange BTC for USD?

Also, any BTC you possess having been through a mixer in the past - yes! That
seems like it could be a real problem. Here's how I see it: If I end up buying
a used car, and it turns out the guy who sold it to me stole it, that doesn't
somehow protect me from the consequences of the original theft. I certainly
won't get to keep that car. Bitcoins aren't cars, but I wouldn't be shocked if
governments decided to go overboard and say that trading in any BTC that came
out of a mixer is illegal. After all, you can check the history of the BTC
yourself and decide whether it's legit.

~~~
rlpb
You can't realistically look at the history of BTC and determine if it came
through a mixer or not. They could have been legitimate transactions.

>I certainly won't get to keep that car.

No. But what if you sold a car and it turned out to have been paid for with
stolen cash? And what if the cash was obtained by the buyer legitimately, but
his source had stolen it? How about the same situation but three times
removed?

You might be interested in this proposal: <http://www.loper-os.org/?p=988>
("Shitcoin is to be a distributed network for attaching “dirt” to particular
bitcoins...")

------
grovulent
An interesting analysis... but I'm so tired of punditry. Sick of a priori
pontification and postulations.

I prefer the hacker mentality which is to build it, release it and see if it
works. There are a crap tonne of variables never controlled for in Denniger's
philosophy.

~~~
nathanb
By your logic we should also build bridges and tell people to drive over them
and see if they collapse.

There is a time and a place for analysis and trying to understand, a priori,
the failure modes of a system. As the potential for loss increases, the
importance of "pontification and postulations" (hopefully more of the latter
than the former!) also increases.

~~~
grovulent
Okay - well if you would grant me the generosity of assuming a little common
sense in my perspective - any reasonable engineer would perform all possible
testing in the building phase of a project. The point remains - in the real
world there be a zillion variables that your tests almost certainly won't
account for.

I agree that there is room for a priori pontification - at the hypothesis
formation stage of theory building, but that's about it. Except folks like
denniger aren't forming hypotheses that can be tested at all. He's just waxing
lyrical - tensing his ideological bow.

------
qixxiq
While the rest of his post is fairly interesting, I am getting rather annoyed
at the complaints of 'double-spend' being an actual problem with bitcoin. Yes,
there is short period before you get confirmations (5-10 minutes), but there
are also a lot of possible solutions to that as support for the currency
develops. Notes are only trusted because of trust in their creator and the
security features they put in place.

If bitcoins ever take off in the larger population I foresee trustworthy banks
that will hold your bitcoins for you. Transactions from them can immediately
be trusted due to trust in the bank that is sending them.

~~~
mikecane
>>>Transactions from them can immediately be trusted due to trust in the bank
that is sending them.

Well that's a bit hilarious to consider since the entire point of alternative
currencies is to bypass that clot in the circulatory system.

------
mikecane
>>>Since technological advancement tends to make it easier to produce "things"
in real terms, a perfect currency reflects this and makes time preference
inherently valuable. This in turn forces the producers of goods and services
to innovate in order to attract your economic surplus from under the mattress
and into their cash registers, since not spending your economic surplus is in
fact to your advantage.

 _That._ As production costs lower prices, money should increase in value just
by sitting in your damn wallet. Not _lose_ value.

EDIT at add: Blah blah oil shortage, oil price increases, prices increase
downstream. But we've been ripping oil out via fracking and if you believe the
PR, oil should be plummeting in price. Somehow, it's only in clear-cut cases
like manufacturing that prices can actually _decrease_.

~~~
kintamanimatt
That's essentially deflation and is generally regarded as a very bad thing.
Nice write-up by Krugman: [http://krugman.blogs.nytimes.com/2010/08/02/why-is-
deflation...](http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation-
bad/)

~~~
jbooth
Shorter explanation of why deflation is bad:

If your cash is increasing in value (because of deflation), then it's a
smarter financial move to stuff cash under a mattress than to spend or invest
it. This is why most economists think 1-5% inflation is about the sweet spot.

~~~
mikecane
Something is very wrong in economics. Falling prices increase the standard of
living and spread prosperity. This is what built America. I can't help but
think this is a con game being played on us when people call it "deflation."
If they had advised Henry Ford, he wouldn't increased wages to his employees
and dropped the price of his car. There are also many unexpected events that
would make you spend money: Pregnancy, illness, a Shiny New Thing, etc. Amazon
would have kept its cloud services prices high too. I lived through the
stagflation of the 1970s. There is no way in hell people can ever convince me
inflation is a _good_ thing.

~~~
drharris
I think you're only looking from a consumer perspective, not a business
perspective. What is my incentive to start a business when it's constantly a
race to the bottom? Furthermore, why invest in a business? It'd be stupid to
put $1000 in an investment when the spending power of that money will only
increase over time, and you'll never get your money back.

No, I don't think you'll find many economists who like deflation. It doesn't
spread prosperity, it spreads laziness.

~~~
mikecane
Then explain to me why Bezos has no problem constantly cutting prices for his
cloud services. Why Jobs priced the iPad at $499 for the base model when even
he acknowledged the buzz was $999 -- and he might have even gotten that.

>>>It'd be stupid to put $1000 in an investment when the spending power of
that money will only increase over time, and you'll never get your money back.

How do you know you'll never get it back? The entire point of investing is to
make money faster than via labor or interest or prices artificially increasing
(a bubble).

~~~
jbooth
He's cutting prices, but we are not in a deflationary environment.

I think you're a little mixed up on the definitions of "inflation" and
"deflation".

~~~
mikecane
Yes, I see why you would think that. And it's perhaps because I'm looking at
it from a consumer standpoint too.

------
codeboost
I see many such articles lately and all of them have the same argument:
bitcoin doesn't fit well with the current economic theory and hence it's a NO.

The fact is, Bitcoin doesn't and will not fit the theory. What it will
eventually do is create a new theory, based on these new technological
realities. In fact, I envision such tremendous changes in our society because
of cryptocurrency in general that it's hard to even imagine what the
consequence will eventually be.

My concern is not that Bitcoin will not work, but that it will work so well
that it will totally transform the world, which, given human nature, can lead
to big disasters, like famines, wars and so on.

------
jmtame
Bitcoin transactions are permanent sure, but they have no identity tied to
them, unless they were purchased with something that already had an identity
associated (eg never buy Bitcoins with PayPal, because PayPal already knows
who you are).

If Joe wants to buy drugs, then he can walk into any bank and do a cash
deposit to a BitInstant account, which gets dumped into MtGox and he can then
move it around any way he wants, including online marketplaces. There's no
identity that can be traced back to him except for the bank's video
surveillance, and how long is that stored at a bank?

Without the surveillance, there's no way to tie any transaction Joe does back
to his identity. The wallet, the address, the marketplace (if done right using
tumbling and encrypting all messages) all leave no trace to a transaction.

~~~
lurkinggrue
It would not be hard. We have seen over and over again how anonymous data can
suddenly be tied down.

Example:

[http://www.wired.com/threatlevel/2013/03/anonymous-phone-
loc...](http://www.wired.com/threatlevel/2013/03/anonymous-phone-location-
data/)

Remember: Attacks only get better, not worse.

~~~
jmtame
Wow, nice find. I hadn't thought about tracing the cell phone before, of all
things.

Practically, it seems like a stretch to try and look at GPS logs through a
carrier and prove that someone was at a bank at a given time. It says the
precision is down to 2 hours, so you can theoretically get to a bank, not
make/receive any calls, and get back before that 2 hour window and nothing
would ever be recorded by the cell towers. If anything, this only proves that
you were in a geographic region. Plausible deniability?

Also, this problem goes away completely if you leave your cell phone at home.
An easy trick to adopt for the Joes looking to buy Bitcoins anonymously.

~~~
lurkinggrue
True, but my point is given a large data set we find surprising ways to trace
it back to people.

So at some point I would expect goverment/people to crack open the bitcoin
data and stat mapping it to people and looking for trends.

I don't think that is specifically a bad thing but you should conciser it
before doing something foolish with bitcoins.

~~~
jmtame
I definitely agree that someone who buys Bitcoins needs to think about how
identity is tied back to them, but so far it's not a convincing point that Joe
is at a high degree of risk if he's cautious. Those points need to be debated
specifically, and not from an abstract or high level. The cell phone example
was the first I heard of that, and a really good example. But it's not going
to break anonymity.

It sounds way too hand-wavy to me to say things like "Well, Bitcoins.. It's a
con.. the government will find Joe, somehow.. Be afraid!"

So far, my point stands that you can remain completely anonymous while buying
Bitcoins. The article started out with fear mongering, and so far, I'm
unconvinced that it has any substance to it. To call it a "con" is
sensationalism at best.

------
sokrates
Literally the entire first half of the post can be read as "but it uses fancy
techno stuff that can be constructed to violate some law." No real arguments
against the currency there, just FUD about the wallet splitting (so I can't
take 20$ out of the 40$ in my purse, right?)

Concering the entropy argument, which makes logical sense to me, it remains to
be seen how much of an impact coin loss makes. As long as the amount remains
small enough, that makes the coins rarer and just makes them rise in value a
bit. Of course, as soon as everyone loses their coins, we're screwed. Who
knew?

Sadly, I think the conclusion is pretty accurate: once Bitcoin rises above the
grass, states will try to crush it with everything they've got. And they will
probably succeed.

------
clicks
I wasn't sure who the author of the post was -- surprised to find out now:
Karl Denninger is an American technology businessman, finance blogger, and
political activist, sometimes referred to as a founding member of the Tea
Party movement. <http://en.wikipedia.org/wiki/Karl_Denninger>

~~~
tptacek
Denninger ran an ISP in Chicago in the mid-90s and is an infamous curmudgeon.
He sold the ISP in the late '90s and, as I understand it, retired to Florida
to curmudge professionally.

I have no idea why his thoughts on Bitcoin would be worth spreading on HN. He
has no particular authority regarding economics (he's not a trained economist
so far as I know) an the reasoning in this post seems to be of the typical
working- backwards- from- foregone- conclusion attempted- first- principles
stuff you can get on any HN thread arguing about Bitcoin.

I _really_ dislike Bitcoin, but can think of much better devil's advocates
than Denninger.

~~~
kevingadd
How is this anything other than an ad hominem attack? You don't really make
any effort to demonstrate any actual issues with his arguments in the linked
post, or even provide examples of better-written alternatives or people who
are more qualified and happen to disagree with him.

The article is formatted a bit strangely, and the author is strange, sure, but
neither of those are legitimate reasons to discard the actual content without
consideration. The article does go to quite significant lengths to try and
establish a foundation for what he's arguing so that the reader can decide
whether they agree with the logical steps he's taking to reach his conclusion,
which I think is a good thing.

~~~
analog
It's not ad hominem because it's not using the dislike of the author to
disagree with the argument.

~~~
jusben1369
Ad hominem isn't that complex. You attack the arguer not the argument.

"Denninger ran an ISP in Chicago in the mid-90s and is an infamous curmudgeon.
He sold the ISP in the late '90s and, as I understand it, retired to Florida
to curmudge professionally." Author attack

"I have no idea why his thoughts on Bitcoin would be worth spreading on HN. He
has no particular authority regarding economics" Author attack.

"I really dislike Bitcoin, but can think of much better devil's advocates than
Denninger." Author attack

Notice the pattern? _not a single rebuttal of the content provided in this
article_ All comments directed at the author. That's an Ad hominem attack.

~~~
tptacek
The point of my comment was the author.

This is another example of the ad hominem fallacy fallacy, wherein any
assessment of a person making an argument is judged out-of-bounds because of
the existence of the ad hominem fallacy. Here is an example of an actual ad
hominem fallacy:

 _Arguer: "Bitcoin is doomed to fail because it lacks a central banking
authority."

Opponent: "That's bullcrap because you're not a trained economist."_

Here is an example of the ad hominem fallacy _fallacy_ :

 _Arguer: "I looked up Karl Denninger and it says he's the founder of the Tea
Party."

Opponent: "Also he's a professional curmudgeon who sold an ISP once and has no
economics training."

Arguer: Ad hominem!_

I am not too invested in this particular thread, but the ad hominem fallacy
fallacy drives me up a wall a little bit.

------
kruhft
All of this talk of how Bitcoin sucks, it's fundamentally flawed and how some
other technology would be so much better sounds a lot like programmers talking
about PHP and how it sucks, it's fundamentally flawed and how some other
technology would be so much better.

Facebook and a lot of other sites have made a hell of a lot of money off of
PHP. It works well enough, it's adopted and it gets the job done. Go be
successful with your perfect system and _then_ come back and tell everyone how
much the other system sucks.

~~~
staticfish
Not sure how this turned into PHP, but yes. It does indeed suck.

------
jrockway
The real question is: does an indelible record of transactions actually make
it difficult to perform illegal activity? I can see arguments either way, but
this will ultimately the interesting question.

On the surface, it seems like it would be easy to send coins and disbursement
instructions to a big pool somewhere. Then someone watching the network sees a
node that eats and emits coins, but doesn't make it obvious which
source/destination were involved in one transaction. (Similarly, your bank
sees a check to your credit card company each month, but doesn't know or care
what exactly you bought on that credit card.)

Even without a "dark pool", I don't think the block chain verification
requires each transaction counterparty pair to be identified. Imagine you
print out a bitcoin and give it to someone in person. This reduces the value
of the coin, since you could have made multiple copies and the first copy wins
when spent on the real network. But people performing illegal activities
already pay a lot for the risk, so this would be nothing new.

Anyway, I mostly stopped reading the linked article when I looked at the
banner at the top of the page.

------
lolcraft
> With a perfect currency time preference has no finger on the scale; that is,
> the currency neither appreciates or depreciates over time against a
> reasonably-constant basket of goods and services. Since technological
> advancement tends to make it easier to produce "things" in real terms, a
> perfect currency reflects this and makes time preference inherently
> valuable.

 _facepalm_ If the "natural tendency" of capitalism is for prices to deflate,
and you want time preference to not be defined by the currency, then exactly
what you want is for the currency to be inflationary! Otherwise, you now have
two compounding forces toward hoarding, or "late" time preference: capitalism,
which drives future prices down, and the currency (Bitcoin, gold...) which
also drives prices down -- since, when we say a currency is deflationary, like
Bitcoin is, we mean it deflates goods' prices over time... Needless to say,
that should fuck the economy up pretty badly, _by your own admission_.

To be fair, it was an interesting argument, until he just freaked out and
confused up for down. Or deflation for inflation, whatever. And this is
supposed to be one of the founding fathers of the Tea Party, by the way?

> This in turn forces the producers of goods and services to innovate in order
> to attract your economic surplus from under the mattress and into their cash
> registers, since not spending your economic surplus is in fact to your
> advantage.

Yeah, this forces producers to _work harder_ in order to get _paid the same_.
That this means a production glut is left as an (easy!) exercise for the
reader. Extra points if you develop your conclusions regarding debt and
interest under this currency.

To be fair, I completely agree with his comparison of Bitcoin to a pyramid
scheme. It's funny how the dude has such a tenuous grasp over the most basic
economics, that he gets it right _by pure accident_ and for all the wrong
reasons.

> That means that if you were one of the early adopters you get paid through
> the difficulty of those who attempt to mine coins later! That is, your value
> increases because the later person's expenditure of energy increases rather
> than through your own expenditure of energy. If that sounds kind of like a
> pyramid scheme, it's because it is very similar to to how the "early
> adopters" in all pyramid schemes get a return -- your later and ever-
> increasing effort for each subsequent unit of return accrues far more to the
> early adopter than it does to you!

You know what? _This is exactly the definition of a deflationary currency_. He
just admitted BTC is a pyramidal scheme because it's deflationary! But, of
course, he's a right-wing pundit, he can't admit that! What to do? No matter,
some pseudo-cryptography, pseudo-physics bullshit ( _entropy_ , of all
things!) saves the day... Now I'm just fucking screaming at the screen... Holy
shit holy shit holy shit holy shit...

I just can't believe it. The inevitable conclusion is, I must be just too
fucking stupid to understand these elaborate libertarian doctrines. Yeah, that
must be...

~~~
jstalin
I wouldn't peg Denninger as a libertarian. He supports the federal reserve and
is fine with fiat currency. I would consider him more a monetarist than
libertarian/Austrian (in fact, he specifically disavows the Austrian view of
money). He's a blowhard that thinks he literally knows everything. I stopped
following him when I challenged his understanding of the history of fiat
currency and he promptly banned me from his forums. He does not tolerate
anyone questioning him.

EDIT: As a side note, it's kinda funny to watch how touchy he is about the Tea
Party concept. He gets angry and claims that he first came up with the idea.
He resents Santelli for being the one to popularize the movement on CNBC.
Denninger doesn't seem to get the idea that people have been using the tea
party term to fight political waste since the original tea party itself. Yet
he persists and occasionally (when I still followed him) fires off blog posts
essentially saying "but I was first!!"

~~~
tptacek
Why did you start following him to begin with? I'm asking because I'm
genuinely interested, not because I'm going to try to make a point.

~~~
jstalin
Because seemed to have good insight, initially, into the 2008 crash. Remember,
it was a time of panic and official stories. He seemed to understand the
underlying issues. He did have some grasp on it, but after I began to
understand things a bit better, he started to just come off as a one note tune
that was out of tune.

~~~
tptacek
Did you ever wonder if maybe he wasn't just regurgitating Calculated Risk? I
jumped to the beginning of Denninger's blog archives (April 2007) to find him
breathlessly explaining Alt-A mortgages --- a beat Calculated Risk and Tanta
had been covering extensively before April 2007.

~~~
jstalin
I didn't make the connection, but I might have subconsciously, since I still
do follow Calculated Risk :)

------
csomar
I'd like to disagree on a few points

#1 Instant

 _This makes such a currency severely handicapped for general transaction use
in an economy, and that in turn damages goods and service preference -- the
ability to use it to exchange one good or service for another._

This can be solved by services which provides such functionality and process
the transaction later. This is certainly a limitation in Bitcoin but you are
not going to process the transaction manually anyway. There will be a third-
party that will handle this stuff.

#2 Anonymity

You can buy Bitcoins with paper dollars making you securely anonymous. You can
even (probably) trade Bitcoins for some work you did anon.

#3 Pyramid Scheme

Early adopters in Bitcoins benefit. That's downright right. But at least you
get to choose if you are an early adopter. You don't chose to take a loan.
You'll probably have to apply and go through their process. You don't chose to
be in the position of making "Quantitative Easing" or benefiting from it.

#4 Bitcoin is destructible

I'm also concerned with this, but some attention by the owners is required. If
enough attention and development is awarded to security in Bitcoins, this will
only happen few times to be noticed.

#5 Taxes

 _Let's say you "buy" Bitcoins (whether for cash or in exchange for a good or
service you provide) at a time when they have a "value" of $5 each against the
US dollar. You spend them when they have a "value" of $20 each. You have a
capital gain of $15._

I agree that's a problem, but it's manageable nevertheless. Companies are
managing this already. People can manage this with the assistance of a third-
party. You are making a profit, so everything is good :)

~~~
lurkinggrue
> #4 Bitcoin is destructable

We can probably expect a Trojan to infiltrate a exchange and destroy the
wallets and backups at some point just for the lulz.

Security is hard and I don't see expect of these exchanges to handle security
right.

Ok,I'm being cynical.

------
drorweiss
Very interesting post, but as I'm not going to be buying or selling pot for
bitcoin, I'm not sure the concerns are relevant. Seriously, I imagine that the
transition from currency made of actual gold that was worth its value to
symbolic currency, especially notes, was a harder transition than switching
from some abstract numbers in dollars to abstract numbers in bitcoin.

~~~
imatworkyo
remember now - gold has no 'worth' Its only valuable because of its utility as
currency, and its standardization as such

~~~
TylerE
That's not true at all. Aside from it's use in jewelry, gold is used in
electronics and industrial chemistry. It actually has industrial uses, thus
there is a certain floor on it's value.

~~~
Sambdala
However, that floor (due to industrial/etc uses) is probably in the
neighborhood of $10-$20 per Oz, or completely decoupled from the actual price
at any given time in written history.

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VMG
tl;dr

* government will kill it

* not really anonymous somehow

* verifications take too long

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p6v53as
So the problem with bitcoins is that it can be harder to evade taxes and buy
illegal stuff? I don't know how it is in USA, but where I live it would be
very useful feature of currency. However I remain unconvinced even of the
arguments that it could be traced.

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d23
> Unfortunately Bitcoin, as I will explain in detail, also does a __ __*-poor
> job of satisfying either of these requirements.

A bit off-topic, but what curse-word is he using here?

~~~
aclevernickname
Starts with a P, rhymes with "Chris".

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DiabloD3
Whats with all of these anti-Bitcoin articles from people who keep cranking
out strawman attacks?

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leovingi
Couple of assumptions are being made here and I'm going to go through them
point by point.

\-------

"There is now an indelible and permanent record of the transfer of funds and
that record will never go away."

The author is absolutely correct that there is now a permanent record of a
transfer funds. But immediately the assumption is being made that such a
record is bad, if you're trying to hide your financial activities. In reality,
all you see is "Wallet A" sending bitcoins to "Wallet B". While you still need
to pay real and traceable money for bitcoins, which can then be tied to your
"Wallet A", all one needs to do, for example, is generate a couple of throw-
away wallets, split the amount of bitcoins up, send them to each wallet, then
use those wallets for the final transfer to "Wallet B". What happens then is
that the pot dealer receives, let's say, 10BC, but such an amount has never
directly left your wallet in a single transaction and you have no connection
whatsoever to the pot dealer. Again, you might be presented with a chain of
transfers and you might be asked why you sent 5BC to a random wallet that has
only ever been used to forward that money to the pot dealer. But that, by
itself, is not illegal. I can send money to whoever I wish right now and,
unless I have specific knowledge of their future actions, what they do with
the money has nothing to do with me.

\-------

" That liability never goes away as it was wilfully evaded and yet the ability
to track the transaction never goes away either!" Personally, I think this is
more about the ethics of tax evasion, rather than a problem with the currency
itself. I do not like to blame objects for the actions of people, but the
author clearly has a different point of view.

\-------

"If you wish to fill up your tank with gasoline, for example, few people are
going to be willing to wait for 10 minutes, say much less an hour, before
being permitted to pump the gas -- or drive off with it." Again, this is a
completely valid statement, but the author immediately assumes that BC is the
end-all global currency, thus tries to validate his disapproval of bitcoins
based on an imaginary problem, that isn't even an actual problem with
bitcoins. If bitcoins solve one or two problems, but don't solve a third, is
that a valid dismissal of the currency as a whole? Can we not imagine a world
where bitcoins are complementary to government-backed currencies?

\-------

"your value increases because the later person's expenditure of energy
increases rather than through your own expenditure of energy." I admit I do
not get this one. If I mined 50BC from the start, how do I profit if someone
else now mines 25BC? Of course, if the value of BC goes up, as it is doing
right now, we both profit, but that has nothing to do with the later person
mining bitcoins. Rather it is a normal process where a lot more people are
interested in buying bitcoins, so demand goes up along with the price. If no
one wanted to use bitcoins, then both people would now be stuck with worthless
bits. Also, I disagree with the premise that early adopters shouldn't be
rewarded. If I start mining bitcoins right from the start, I carry a much
bigger risk of wasting my investment (electricity usage, etc.) than the person
that joins later on, once the currency has been established and it seems
reasonable that it might be used by millions of people.

------
jellicle
I was not expecting Tea-Party-Guy to have anything good to say, but his
analysis of Bitcoin is both brutally honest and accurate.

At some point in time - a point in time which is probably in the past - the
government is going to lock a cryptographer and a forensic accountant in a
room together and tell them to develop a tool to unroll bitcoin networks. They
will (have) done so. The tool will, given a couple of known transactions,
create a graph of every activity ever that is in any way related to those
transactions. Each known transaction or account added in will fill in the
graph further. A handy printout will correlate all the intersections between
graph 1 and graph 2 for any two individuals the government wants to link
together.

"Says here on November 3rd you sent another $7,500 to the opium dealer from
Hong Kong. What were you buying?" "On the advice of my lawyer, I refuse to
answer."

The first people the federal government decides to take down who have used
bitcoin in their financial shenanigans are going to be facing 1000-count
indictments and 500-year prison terms.

~~~
psionski
Something like <http://blockchain.info/tree/65591581> ?

~~~
jellicle
The point is to make it intelligible to the average district attorney, and to
take arbitrary transactions and wallets and link them together into a
web/timeline that, again, is intelligible to the criminal prosecution
apparatus.

------
hawleyal
FUD

------
maeon3
He's making a big deal out of the fact that some evil human may concoct an
evil plan and swindle an honest man out of his hard earned bitcoins.

He's missing the entire point, bitcoin was designed to stop the federal
reserve and US Mint from systematically diluting the value of our money
through systematic inflation, (taking taxpayer dollars and giving it to AIG
buddies for bailouts and million dollar bonuses) while bribing the media to
trick the masses that inflation is somehow "good" for us.

Yes, evil men exist, and they will swindle others with tricky transactions.
The purpose of bitcoin is to stop the people who create the money from
stealing most of the value of all wealth on Earth every 20 years or so through
Quantitative easing, inflation, and "printing dollars and giving the money to
your friends" which is running rampant in this country.

He's ignoring one of the primary strengths of bitcoin, that if you want to
acquire bitcoins, you will have to either A: deprive another human of them
through specific and traceable theft/deception, or B: to provide reasonable
goods and services in exchange them.

It stops the "Government printing Money and giving it to buddies" inflation
problem dead in its tracks. But who cares? It means 5 hours of human labor
deposited into bit coin equals 5 hours of human labor back out 20 years from
now. We don't have anything like that now. It is as revolutionary as the
invention of agriculture.

Sadly his conclusion is right. When this thing starts taking off (especially
in cyprus where the governmental theft is rampant), anyone who uses it
significantly is going to find their head on the chopping block, having been
convicted of aiding and abetting the domestic terrorists. We must think
clearly, putting ourselves in their shoes, on how they will crush BitCoin like
a bug, and be prepared for the counter attacks.

~~~
muraiki
Well, you can also acquire bitcoins through mining them, which substantially
benefits the early adopters. 5 hours of human labor deposited into btc _is
not_ equal to 5 hours in the future, because of btc's built-in inflation
through increasing the difficulty of mining them. This is why Karl thinks that
btc has the markings of a Ponzi scheme.

Also, he points out that btc has no method of deflation aside from actually
destroying the coins. The section about seigniorage explains his views here
and while it's not worded the most clearly I think that it's a reasonable
critique.

If this were really a method that he felt was viable enough to escape the
taxation of inflation through money printing, manipulation of the CPI, etc.,
then I'm sure Karl would be on board. He has been writing about these exact
topics for more than five years now.

~~~
tptacek
This is why _everyone_ thinks Bitcoin has the markings of a pyramid scheme.
It's so obvious that it was literally the only thing Tyler Cowan could say
about Bitcoin several years ago, in something like 3 sentences.

------
MostAwesomeDude
What a difficult-to-parse writing style. I can almost hear the HTML tags
screaming, begging for release.

~~~
mmavnn
I could hear the volume of my 'mental voice' rising as the various forms of
emphasis started overlapping and leaving less and less text untouched, until
it felt like I was reading the screaming denouncements of a deranged dictator.

The content was actually quite interesting underneath.

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mrjava
great post. I feel that history will judge history as a scam and nothing more.

