
A Letter To Senator Manchin - trendspotter
http://avc.com/a_vc/2014/02/a-letter-to-senator-manchin.html
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jeremyt
Despite what everybody likes to think, politicians aren't idiots.

When somebody disagrees with me, I like to assume that they're not idiots and
that the disagreement might be based on some legitimate point that I've
missed.

The truth is that Bitcoin is an existential threat to the United States
government. As long as it's some third tier crypto currency only used by nerds
on the Internet, it doesn't matter. But the infrastructure is being laid to
push it as a (the) new global currency.

If that happens, we will witness an economic revolution with no parallel in
history. It will literally be raining cats and dogs in the street.

Practically overnight, the US will lose the ability to borrow in its own
currency, forcing a quick tightening of monetary policy, further exacerbated
by foreign governments dumping their dollar reserves. The dollar <-> XX
exchange rate would approach zero. Anyone holding dollars would no longer be
able to afford any foreign goods. Dollar inflation would be rampant. A
recession or depression would quickly follow.

Anyone not holding bitcoin will become the new underclass, and the new rich
will be those who got in early. Essentially, the new world order will
basically be made up of lottery winners.

Pensions would become practically worthless, as they would need to be
converted to the new currency to be spent.

Etc, etc.

That's why I don't have any money in bitcoin. It can't succeed. The current
world order won't let it.

~~~
mathattack
There are a lot of bold comments that you're making here.

 _Pensions would become practically worthless, as they would need to be
converted to the new currency to be spent._

If pensions hold real assets (land, companies, etc) the currency of the realm
doesn't matter much, whether it's dollars, euros or bitcoins. Most pensions
aren't just sitting on cash.

 _Anyone not holding bitcoin will become the new underclass, and the new rich
will be those who got in early_

Again, real asset holders don't care about the coin of the realm. If you own a
company, you can sell it to buyers in whatever currency you want. Net lenders
may be harmed, because they could get paid back in less valuable dollars. Net
borrowers may be helped, because they can pay their debts in less valuable
dollars.

 _It will literally be raining cats and dogs in the street._

Literally?

I find a lot to disagree with your points and hyperbole. The irony is I am
fully in agreement with your last point. _It can 't succeed. The current world
order won't let it._

~~~
jeremyt
The cats and dogs line was a joke. In this case, I added the word literally to
mean "usually when people utter this phrase they actually mean it
figuratively, but I'm making such a strong statement that I'm really trying to
say this time it's for real". Its extra hyperbole for comedic effect.

I take your point that a lot of pensions hold real property, but they also
hold a significant amount of dollar-denominated assets. They don't have to go
to zero for my raining cats and dogs point to hold, they just have to decline
a significant amount.

Your second point is actually missing my point. I'm specifically referring to
the transition in which anyone holding dollars will find their dollars
worthless and anyone holding bitcoin will become filthy rich practically
overnight. Think of it like a bank run. After the transition, business will
continue as normal in the new currency.

Also, it is a good point that anyone holding debt denominated in dollars will
find their debts disappear. I'm not sure this is a positive outcome.

~~~
mathattack
_Also, it is a good point that anyone holding debt denominated in dollars will
find their debts disappear. I 'm not sure this is a positive outcome._

It's positive for the borrower, negative for the lender. Same as any
unanticipated inflation. In your example, it's just a more extreme case.

 _I take your point that a lot of pensions hold real property, but they also
hold a significant amount of dollar-denominated assets. They don 't have to go
to zero for my raining cats and dogs point to hold, they just have to decline
a significant amount._

The denomination doesn't matter as long as it's a real asset. If it's
property, you can sell the house in a new currency. If it's a share in a
company, the shares may be quoted in dollars, but they can always be sold in
another currency.

This isn't to say that there wouldn't be massive upheaval, I just don't see it
happening in the way you do. The impact would be more like the scenario if the
dollar doesn't become the world's reserve currency. There would be significant
increases in US borrowing costs, and a long term drop in our growth rate. But
assets won't go to zero.

------
drakaal
Senator Manchin is doing what America does.

We live in a country where a Governor will ban large soda's for our
protection.

Every bag comes with a warning "not a toy".

Houses come with disclaimers not to eat the paint chips.

Raw Milk (which I wouldn't touch) is illegal for public safety.

By all counts, Bitcoin is scarier than any of these things. If not banned it
should have warnings. We don't have a good way to put warnings on it so we ban
it. Right wrong or indifferent that is what America does. Manchin is just
making sure he gets credit for an idea that was sure to come up.

~~~
clamprecht
Why is the US like this? (I'm from the US). Was it caused by lawyers?
Liability laws that allow crazy lawsuits? How can this be avoided in other up-
and-coming countries? (I fear it's too late for the US to change course on
this). Or is it just an inevitable result of being a rich country founded by
lawyers?

~~~
drakaal
Liability is a big part. We decided at some point that the populous is stupid
and needs protection.

------
kolev
Aren't you guys getting tired of all the annoying buzz around Bitcoin already?
Do something good for this world and create something of essence, not yet
another vehicle for speculators and ugly (personality) people like Barry
Silbert and the Winklevii. When I look at those two (three?) alone, I see
"greed" and "envy" in all caps! Fred Wilson really lost all my respect after I
saw him during the hearing - he's a small little person! He and Paul Graham
are like night and day!

It's beyond obvious that 2013 will be the year of Bitcoin growth and 2014 -
the year of its demise. I have to agree that the technology has some decent
niche applications, but world-changing it is not.

------
chrisBob
Congrats on the open letter. Have you also tried emailing, or writing a real
letter? I have gotten a few personal responses from well reasoned emails I
have sent, including one after seeing my senator publicly change his position
in my favor. They really do listen. An open letter is mostly just going to get
other people on the internets to agree with you.

Oh, and if you are going to fight for less regulation you might want to wait
for the only BTC news story in the popular media to blow over.

~~~
fredwilson
through senate staffers i know, i made sure Senator Manchin sees my post and
also my partner's post [http://www.usv.com/posts/when-did-america-become-to-
afraid-t...](http://www.usv.com/posts/when-did-america-become-to-afraid-to-
explore-a-frontier)

------
andrewfong
> All the major Bitcoin exchanges have been built outside of the US

Is Coinbase not considered a major Bitcoin exchange?

~~~
minimax
Coinbase isn't an exchange. It's a dealer. Coinbase is the counterparty to
every trade and they have no obligation to quote you a good price. There isn't
an order book or anything like that. Amazing how many people don't get this.

~~~
wslh
Could you elaborate a bit more about the difference between an exchange and a
dealer? Thanks!

~~~
minimax
Sure. Let's start with dealers. A dealer is a party that stands ready to buy
or sell something (in this case bitcoins). When you want to transact, you ring
up the dealer and ask for a quote. The quote is composed of a price at which
the dealer will buy bitcoins and a price at which the dealer will sell
bitcoins. If you like the price, you do the deal. So throughout the day, the
dealer is constantly buying and selling. The difference between the buy and
sell price gives the dealer his profit. If a dealer decides he is building up
too much inventory, he may, for example, lower his bid price (widening out the
spread) so that fewer parties will be interested in selling to him. That's the
basic idea of a dealer.

Now exchanges. The idea with an exchange is to match up a plurality of buyers
and sellers. Exchange participants can send in orders to buy or sell a
specific quantity at a given price (these are called limit orders). These
orders are all combined and sorted by price into a _limit order book_. If you
look around at some of the bitcoin exchange sites most of them will show you
the state of the book†. When you look at a quote at an exchange you are really
looking at the highest priced buy order (or the aggregate of all orders at
that price) and the lowest price sell order. When market participants wish to
transact immediately, they can send in a marketable order, meaning that buyers
will pay the best offered price or sellers will pay the best bid price.
Marketable orders "cross the spread". The exchange is responsible for updating
the book and distributing it to market participants, but the exchange itself
doesn't do any buying or selling. Exchanges take a percentage fee of each
transaction which is the source of an exchange's profits.

Let's say I'm a bitcoin miner. My mining machinery creates bitcoins out of
electricity but I still need dollars to pay the utility bill. This makes me a
natural seller of bitcoins. When I go to sell my bitcoins, I want to get the
best price for them. I might post a limit order to sell at what I think is a
reasonable price on an exchange and wait for my order to get hit. I might also
look at the lowest offer price and decide to post my bitcoins for sale at a
penny less in order to increase the probability of getting my order filled
quickly. This kind of limit order trading is only available at an exchange. If
I could only transact with a dealer, I'd have to either cross the spread and
accept the dealer's bid or not do a deal at all.

† For example:
[https://www.bitstamp.net/market/order_book/](https://www.bitstamp.net/market/order_book/)

------
Realskeptic
Clear example of fear of the unknown

