
What’s Not Being Said About Bitcoin - ibsathish
http://techcrunch.com/2014/02/28/whats-not-being-said-about-bitcoin/
======
lingben
The number #1 requirement for a currency is trust and confidence in it. Why
would anyone trust a currency which has no consumer protection whatsoever and
provides zero recourse for when things inevitably go wrong?

What I mean is, everyone is hating on Mt. Gox but conceivably what happened to
them can happen to any of the exchanges out there now. There is no mechanism
to prevent it and there is no recourse for users when it does.

This is why bitcoin is interesting as a protocol but a non-starter when it
comes to being a true currency. A currency requires backing by a central
authority. No amount of code can make up for that.

EDIT: I would also like to add one simple thing. Here we are discussing a
topic that falls into the field of economics. How many here are economists?

ok. How many here have taken at least a few courses in economics?

ok. How many here have taken 1 course in economics?

If a slew of people with zero knowledge of programming, computers, technology,
etc. decided one day to start pontificating incessantly about code,
programming languages, etc. hn would first sneer at them and then rightly
ignore them.

But if people with zero knowledge of economics or finance write a torrent of
vapid and completely ignorant articles about currency, bitcoin, macro-
economics and their intersection hn seems to vote it up.

I'm really tired of this. I do get that the bitcoin protocol has some
interesting aspects. But can we please ignore the total waste of space, time
and pixels that is every single article about the bitcoin currency?

~~~
vbuterin
Why is it a currency's job to provide consumer protection? That's like saying
that it's a kitchen stove's job to tell you what things you can cook with it,
or that it's TCP's job to provide built-in encryption and authentication. It's
not; it's the job of third-party services built on top. Systems are better
when they're modular and distinct components are not arbitrarily bunched
together, allowing separate innovation in each one. And the Bitcoin community
is developing such third-party services as well; I know of at least three
Bitcoin businesses working on providing arbitration services and secure
Bitcoin wallets using multisignature transactions.

~~~
lingben
"Why is it a currency's job to provide consumer protection?"

I think you are misunderstanding what I'm saying. It isn't the currency's
"job". It is a fundamental prerequisite that the currency have a backer for
said currency to be used widely.

The mistake that people make with bitcoin is to put the cart before the horse.
That is, they think that achieving critical mass [1] means that a currency has
'succeeded'.

In fact, you first need to provide a reason for people to trust the currency
(central authority) which then leads to critical mass... and then 'success'.

The essence of bitcoin is ephemeral with no control, no central authority and
no recourse. This stuff is built in. Unlike our current 'old style'
currencies, bitcoin prides itself on standing apart this way.

When a currency is built in such a way that it EXPLICITLY removes the ability
to have such necessary characteristics of a currency, you better believe it
matters.

[1]
[http://en.wikipedia.org/wiki/Critical_mass_%28sociodynamics%...](http://en.wikipedia.org/wiki/Critical_mass_%28sociodynamics%29)

~~~
lutusp
> It is a fundamental prerequisite that the currency have a backer for said
> currency to be used widely.

Yes, that's a prerequisite for a currency to function as it should, but I
think you're suggesting that Bitcoin differs from paper money in that regard.

It happens that people trust paper money, but this isn't because paper money
has some kind of innate authority beyond public faith and trust. If a
particular government chose to manipulate the currency they could destroy it,
either quickly or slowly.

> The essence of bitcoin is ephemeral with no control, no central authority
> and no recourse.

I think you're exaggerating the role of "central authority".

[http://w3.newsmax.com/newsletters/uwr/images/transcript-
img1...](http://w3.newsmax.com/newsletters/uwr/images/transcript-img14.jpg)

To me, the only difference between Bitcoin and paper money is public
familiarity.

------
pistle
I gave it the moment that it deserves, but I don't know if it's possible to
over-discount what the CEO of a company with so incredibly much invested in
said virtual-crypto-currency has to say.

He's looking for reach to console everyone sitting tenuously on their virtual
piles. "Oh, we're all better off for the massive amounts of consumer loss.
Keep calm, carry on."

Or, to put it another way, "Yeah, all those suckers with money at the largest
exchange were stupid to be putting confidence in a stupidly run exchange. So
glad everyone can feel better since a bad apple fell off. There are only good
apples left now - trust me."

~~~
ewillbefull
It's hard to overstate how much of a bad apple MtGox was.

In 2011 they were hacked causing the first huge bitcoin crash -- probably
still the largest crash ever in bitcoin's history. Yet because they had the
most reserves, people kept the volume there.

In 2012 their tech was incapable of supporting new volume and caused flash
crashes. Yet because they had the most reserves, people kept the volume there.

For most of 2013 nobody could withdraw anything from MtGox. Yet because they
had the most reserves, people kept the volume there.

No other exchange was this bad. Now you see why a lot of us are happy this
company is gone. It just sucks they had to take so many people down with them.

------
forgottenpass
He's got a point. Once the jokesters like Mt Gox and Coinbase die off and some
reliable companies set up shop, Bitcoin will be stronger for it.

~~~
chadwickthebold
Uh... "Brian Armstrong is the co-founder and CEO of Coinbase"

~~~
mortenjorck
A company having unreliable infrastructure and unresponsive customer service
does not necessarily mean its CEO doesn't understand the potential of the
market they're in.

------
aristidb
So this is a tiny bit of a pet peeve of mine:

I do not think changing strictly more informative titles to the version in the
article itself is a good idea. Changing "Brian Armstrong: What's Not Being
Said About Bitcoin" to "What's Not Being Said About Bitcoin" helps nobody.
"Brian Armstrong" is not editorializing. It's a fact.

Proposal: Instead, put the non-canonical part in brackets at the end, like so:

What's Not Being Said Aboit Bitcoin [Brian Armstrong]

Editorializing additions would still be banned.

------
jerf
As I said on another post that got a bit more buried, what matters is not that
there was a crisis; it is a fully correct and accurate observation that
conventional currency has crises too, and sometimes they even entirely
collapse. What matters for BitCoin is the same thing that matters for
conventional currency, which is what comes _next_.

Again, rationality forces me to concede that I did not expect BitCoin to
recover this well. Look at the past six months of BitCoin value [1] and this
barely shows as a blip. This is, of course, because the currency itself is
pretty darned volatile still, but, you know, still not what I would have
predicted, and I have to respect that.

[1]:
[http://bitcoincharts.com/charts/bitstampUSD#rg180ztgMzm1g10z...](http://bitcoincharts.com/charts/bitstampUSD#rg180ztgMzm1g10zm2g25zv)

~~~
ewillbefull
To be fair, most of the downturn you see starting in Feb is due to this issue,
it just came to a head when bankruptcy was inevitable. Not really a blip.

~~~
jerf
I still would have expected worse, just from the sheer bad publicity press.
It's also hard for me to believe that the market had fully priced in the
possibility that MtGox would collapse, _and that price was only about 1 /2 -
2/3s the value of BitCoin_. I would easily have expected 2-3 _factors of
magnitude_ with a good odds of a full-on death spiral.

So far, I've been wrong, and rationality compels me to adjust my beliefs in
reaction to that. (Bearing in mind the market may still remain irrational
longer than I can retain solvency in my opinions. Still... this is not what I
would have predicted two weeks ago.)

------
higherpurpose
> When trying to predict the future, you should never look at the state of a
> technology today, but the trend of how it is growing or maturing over time.

That's always an important principle to remember, and I always try to bring it
up myself even in discussions about overpopulation.

These days I'm actually even more excited about all the "Bitcoin-like"
protocols popping out, and new research being done for all sorts of crazy
distributed applications, that couldn't have been done before Bitcoin.

Bitcoin is kind of like the Gopher protocol of the Internet. There's so much
more stuff and _bigger_ stuff that's going to appear over the next few years
or decade. It's still very early days for these technologies and for the full
decentralization of trust.

------
brudgers
What Mt. Gox shows is that the integrity of bitcoin as a currency is somewhat
dependent on the level of technical sophistication of 'legitimate' bitcoin
players versus the technical sophistication of 'illegitimate' bitcoin players.
If the bitcoin establishment isn't the smartest people in the room, then can a
person on the street trust them?

Anyone can put cash in their mattress and reasonably assess the risks.
Likewise the risks associated with a bank are somewhat knowable.

But assessing the risks with crypto currency is almost impossible for even a
reasonably sophisticated user. Under a rational actor model, bitcoin becomes
attractive when the risk of not being able to assess the risk of bitcoins is
less than the risk of using another form of transaction - e.g. Silk Road.

That's not to say that bitcoin = Silk Road. But any bitcoin transaction has a
higher probability of involving a party with fewer inhibitions against illegal
activity. Will the person who uses bitcoins to avoid taxes on the income from
AirBnB rentals rob you? Probably not. But as using bitcoin becomes a more
compelling economic option, the activity is likely to be farther away from the
bounds of law.

Amassing bitcoins makes sense when it is the best economic option and the
scenarios in which that will always apply are speculation and legal burdens on
other currencies. In neither of those cases is their a reason to trust the
other party.

------
balls187
> Bitcoin is getting stronger and proving to consumers and businesses it is
> not going away.

That's all well and good, but as a consumer, I want some level of protection.
With credit cards and my bank account, if some entity (myself included) makes
stupid decisions and causes me to lose money due to digital theft, my credit
card/bank will often take care of the issue.

With BitCoin, and the failure of Mt. Gox, consumers have no recourse (at least
as far as I can tell).

EDIT TO ADD:

I'm not sure what problems BitCoin solves for me, as a consumer. I hate that
PayPal can "lock" me out of my account, so I don't use it. BankOfAmerica, can,
but usually will only do so for extreme circumstances (ie asset seizing and
forfeiture).

I hate that Banks charge a fee for the privilege of storing my money in it,
but there are enough banks/credit unions that offer services for free.

This article leaves open several issues by likening BitCoin to email. Great
that email is a protocol. But what happens when Gmail fails? At this point
GMail is too big to fail, and I for one am glad that Google, with it's
resources and very talented engineers are backing it.

> New technologies take time to mature.

Granted. BitCoin is very sophisticated, and it's clearly valuable. But, this
is my hard earned cashtro we're talking about, and I don't want to put it into
"immature" technology. Again, as a consumer, my confidence is a real material
thing when dealing with financial institutions.

~~~
SilasX
Just like you'll wait until physical cash has mugger protections before using
it?

~~~
patmcc
"Physical cash" stored at a third-party like a bank or credit union does have
mugger protections - they have safes and vaults and security guards and
insurance. If a bitcoin "wallet" service opened that offered those things,
consumers would be more likely to take it seriously.

Putting a fortune into Mt. Gox or someone similar is like burying your cash in
someone else's backyard. You don't need mugger protection, you need common
sense.

~~~
SilasX
>"Physical cash" stored at a third-party like a bank or credit union does have
mugger protections - they have safes and vaults and security guards and
insurance. If a bitcoin "wallet" service opened that offered those things,
consumers would be more likely to take it seriously.

Indeed. But you wouldn't fault the paper dollar itself for failing to have the
protections of the vault, just as you shouldn't fault the Bitcoin itself for
failing to have he protections of escrow, nor compare a paper apple to a
vaulted orange.

Yes, 3rd party services will help with the trust issue in the Bitcoin
ecosystem. They are still not a failing of Bitcoin per se, just as lack of
built in mugger protections is not a failure of the paper dollar per se.

------
CookWithMe
I don't think it's a good idea to use email as heavily as OP does for his
argument, especially with regards to spam and "weeding out bad actors".

> Like the spam filters developed on top of email, the best Bitcoin services
> providers will develop the best software to iron out any details the Bitcoin
> protocol has still left open to abuse.

While spam-detection is certainly a lot better than, say, 5 years ago, it's
not perfect. And while the cost of false-negatives is relatively low, false-
positives can have bad consequences.

I don't think average people want to trust their money with something that is
as trustworthy as a spam-filter is today, let alone go through the equivalent
of "I had 10 penis-enlargement-scams in my inbox this morning"-technology-
maturing-phase for a payment technology.

------
btown
I've grown not to take anything TC says seriously... but when they say that
nobody's been talking about this:

> Open networks keep growing even if individual participants fail.

... then they must have been burying their head in the ground for the past
week. EVERYONE has been talking about that.

~~~
eterm
They're also wrong, open networks can die out.

Usenet died out to proprietary forums, to the point where we've been left
without satisfactory replacement.

Email might not be dying out but it's being assaulted on all sides by
proprietary messaging systems. Some of the largest recently acquisitions of
companies have been proprietary messaging systems. One day we might be "stuck"
without email in the way we're "stuck" without usenet and wonder how we got to
that point.

Bitcoin is potentially vulnerable to a more easy to use (or more easy to
scale) proprietary version.

~~~
philwelch
Usenet isn't gone; people just don't use it anymore because it became
terrible.

------
rayiner
I'm surprised by the reaction to Mt Gox's bankruptcy. There appears to be a
lot more people treating it as a real bank then I thought. Which is
disconcerting not because people lost money, but because it could lead to
premature regulation of Bitcoin before we really understand what the ecosystem
can sort out for itself. I'd love to see Bitcoin as an alternative economy
that's left alone except to the extent it threatens the dollar denominated
economy. If only because I think people can decide for themselves if they want
to take the risk of participating. Nobody is holding a gun to your head making
you use Bitcoin.

------
badman_ting
I actually believe Bitcoin will live on after this, but I just can't see
myself using it. I have no idea how I would turn money in to bitcoin without
getting totally fucked. Where I would put it that it wouldn't just get stolen
through some crypto trickery I don't understand. Who knows if supposed "good
guys" are really just playing a long con, or getting robbed themselves. This
isn't just a flaky beta of an app that needs a couple months to shake out the
bugs, people lost huge sums of money here.

~~~
wyager
Recently, a number of my non-computer-y friends have asked me how to start
using bitcoins. To my surprise, they had no trouble doing everything properly.
I told them to use electrum, and they managed to A)encrypt the wallet and B)
back up the seed with no help from me.

I helped them back up their wallets online, and also buy bitcoins via
localbitcoin. I'm confident they would have figured those out on their own
eventually.

Of course, these folks are mostly using OS X or linux and are relatively
competent, so I'm not worried too much about malware. If they were using
windows I wouldn't be as confident.

~~~
badman_ting
That's cool but I don't think tech-savvy is the issue here, rather it is risk
aversion. I have no idea if anything you just said is secure at all. The word
"encryption" doesn't make me feel any better about any of this.

------
Zigurd
He makes an interesting analogy to email, which, like Bitcoin, is constantly
under attack from scammers, and criminals. And email wasn't designed to be
hardened.

So far, so good.

But, and this is a very big "but," what's really going unsaid is that Bitcoin
might also be under attack from governments who think it might be a threat to
the effectiveness of central banks and to the survival of weaker currencies.

That's a whole other ball game.

~~~
philwelch
That's a conspiracy theory. The real reason Bitcoin might "come under attack
by governments" is because the primary applications for it have been to buy
drugs, hire hit men, and launder money.

~~~
Zigurd
> _the primary applications for it have been to buy drugs, hire hit men, and
> launder money_

Has anyone actually determined whether such claims are credible? It should be
possible to analyze if that's likely, even if it would be hard to prove.

~~~
philwelch
What was the largest online Bitcoin marketplace and what was sold there?

~~~
Zigurd
What was the total transaction volume through Silk Road? Something in the
middling 10s of million US$. As many have pointed out, Silk Road was an
impractical novelty, with higher-than-market prices, and hardly a measurable
part of the black market for drugs.

The total market value of bitcoin mined so far is something like US$1billion,
and about US$2.5billion at peak prices. 90%+ of Bitcoin is a bet against
conventional currencies. A bet that value will flow into Bitcoin because
people would prefer that over conventional currency.

~~~
philwelch
I guess I wasn't counting speculation in Bitcoin itself as an application of
Bitcoin.

------
Phlarp
I'm interested to see if the communities around various other exchanges will
jump up to demand more accountability from those in charge or if the chaos of
the crowd will continue to prove how valuable governmental regulation can
actually be to the system as a whole.

~~~
crazy1van
"... to prove how valuable governmental regulation can actually be to the
system as a whole."

Conversely, if Mt Gox had been regulated more like a major bank, right now
we'd all be getting out our checkbooks to bail them out. Then, a similar
organization like Coinbase would have even less incentive to keep their house
in order. In the worst case scenario, they'll just be bailed out too. And then
there is the consumer, who will have no incentive to only bank with solvent
institutions. Who cares? We've got FDIC. The amount of ignorance and moral
hazard created by this style of system adds up pretty quickly.

The current bitcoin system is definitely messy. But when something goes wrong,
the damage is largely contained. Mt Gox died. People who had value stored
there lost it. But people with bitcoins are Coinbase were fine. And the
average tax payer didn't have to spend a dime.

All in all, I find the whole thing to be a fascinating test case for
unregulated finances. I could be totally wrong and bitcoins exchange rate with
dollars could drop to zero because of this. However, the biggest "bank" just
failed and the system itself seems remarkably stable.

~~~
Phlarp
Just because the specific regulations imposed by a mostly corrupt government
led to failure and a subsequent bailout does not mean all regulations are
inherently flawed.

~~~
crazy1van
Of course not, but governments view this as a finance / banking system and
will tend to regulate it the same way. They will fit that square peg through
the round hole.

------
coldcode
It's all well and good until governments step in a regulate/destroy it. Which
will happen.

~~~
lutusp
> It's all well and good until governments step in a regulate/destroy it.
> Which will happen.

When governments control spam, then I'll start to believe they can control
digital currencies. My point is not to equate Bitcoin with spam, but to say
that certain Internet activities are completely outside anyone's control,
regardless of how much public or political pressure is applied.

------
thinkcomp
What's Not Being Said About Coinbase:

[https://www.quora.com/What-is-the-legal-and-technical-
setup-...](https://www.quora.com/What-is-the-legal-and-technical-setup-of-
Coinbases-exchange/answer/Aaron-Greenspan)

