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A Prediction: Bitcoin Is Doomed to Fail (nytimes.com)
185 points by peter123 on Nov 27, 2013 | hide | past | favorite | 426 comments

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

Please explain how bitcoin can discern vicarious liability. You're still going to need lawyers.

Please explain how a bitcoin blockchain record can testify in court that a copy of a document is authentic. Hint, you're infront of a jury, you have a blockchain hash, and opposing council has a notary public with 40 years of experience, both copies of the document differ, the original cannot be found. Hers has an official looking seal, you have some random numbers.

Please explain how I can buy a pack of cigarettes at 11 pm in under 5 minutes with bitcoin.

In short most of your claims are highly exaggerated and don't work beyond the most trivial scenarios.

> Please explain how a bitcoin blockchain record can testify in court that a copy of a document is authentic. Hint, you're infront of a jury, you have a blockchain hash, and opposing council has a notary public with 40 years of experience, both copies of the document differ, the original cannot be found. Hers has an official looking seal, you have some random numbers.

Here's an imaginary possibility. A hundred and fifty years from now, courtrooms come with computer systems built from scratch and operated by court clerks. Their sole purpose is verifying blockchain records. The jury knows to trust the machine. In fact, the jury instructions tell them to.

None of the jury members have ever seen official documents on physical paper. They only know about paper documents from watching historical fiction movies. In such movies, the possibility that the documents are forged is always a major plot factor.

I think in practice, the first time someone needed to do this, a bunch of high grade academic cryptographers would acts as expert witnesses pro-bono. From there, it would be like a hacking case - an expert explains the issue to the jury, who take a decision. Assuming it is technically sound, bitchain certification would win.

Subsequent cases would be able to use the precedent, and win with less interesting experts.

These comments are actually making me think of this case:


I've faced these authentication issues in Asia and the Middle East. There is an increasing willingness of authorities to trust non-traditional means of authentication through neutral third parties. For example, I recent pointed to a commercial corporate records provider as a source of authentication of a foreign corporation being in good standing and the local Middle Eastern authority was willing to go online, look for themselves and conclude that the information was correct. I beleive that such forward-thinking authorities will begin to participate in BTC hashing and be willing to gather the information for themselves.

If you think about it, this is a lot more convincing than getting a ribbon-covered document from a foreign jurisdiction that you may not be able to read, even if it authenticated by a series of trusted authorities (a chain of embassies in this case).

Bitcoin might let you say things like "both parties signed this document on this date" but you will still need a jury to decide "Action [foo] does or does not constitute a violation of this document which they both signed on this date".

Do you remember when computers used to take whole rooms and apparently "Computers in the future may weigh no more than 1.5 tons." and "There is no reason anyone would want a computer in their home."

Now iam replying to this from a phone

Just saying technologies improve over time, bitcoin is a very interesting mix of technologies, probably the most exciting thing to come along since email, web, bittorent and social networks

The most exciting thing since the web? Really? It's an interesting technology, but let's not forget Foursquare launched the same year and has had more of an impact on business, and Instagram launched a year after and has had more of an impact on the general population.

Bitcoin was engineered to take time, it wouldn't be as popular as it is now if things played out differently.

In fact the whole value of the currency is based on the fact it takes work, and therefore time, to create.

Foursquare? Yeah, right... and Instagram is basically imgur with filters... Compared to peer-to-peer money, your examples aren't very good.

For now, you cannot buy a pack of cigarettes with it, but as more vendords accept it, you will have apps on your phone that will let you easily do that.

Look, bitcoin is a platform and it is in it's infant stages. But, it has huge potential. Potential does not mean odds of success are 100%

I don't think you understand even if the vendor accepts bitcoins, and even if I bring my laptop I still can't buy anything in under 5 minutes.


Yes you can. You do not necessarily need a confirmation if you are willing to take a small risk (and a vendor accepts risks much bigger than that if he's in business).

Considering the extent to which cigarette vendors around here keep their merchandise locked up, I don't think they're willing to take on a lot of "I hope these bitcoins are legit" risk.

Merchant software can listen to the network for 10 seconds. If no contradicting transactions have been broadcasted, the probability of the bitcoins not being legit is EXTREMELY small. You only need confirmations for large transactions. Zero-conf are completely safe for the large majority of transctions.

Bitcoin-type technology has tons of potential, my friend.

Or I can use actual money and forget all this nonsense ... Which do I choose?

What about credit cards? Chargebacks are quite common.

Credit cards are not a feature of a currency. You could just have credit cards that keep debt in BTC instead of USD.

The point of the person you're replying to is that, for 99.999999% of businesses, there is no benefit to using BTC. It doesn't offer the buyer any protection, it's extremely volatile, and it would require an overhaul of the entire economy's infrastructure to implement in any meaningful way.

This is incorrect, see my post: https://news.ycombinator.com/item?id=6812657

Also, nice strawman with the laptop. Ever heard of smartphones?

Actually, you have an expert (or more than one expert) who can testify to the nature of the block chain and the difficulty and expense involved in altering its history.

They are applying old-world money ideas to something that is so new that we don't have useful models yet for deciding how it will behave, thinking that they do apply without loss of content. The rules of supply and demand apply, sure, but none of the other common-sense intuitions about how money works.

BitCoins don't have any resistance to movement, or very little. Physical money does. This means the difference between BitCoins and physical money is perhaps comparable to the difference between massive particles like atoms and massless particles like photons, or to the difference between a classical conductor and a superconductor. Which is only to say that the same rules don't apply - new behaviors are observed.

We are in a new world and the study of economics is about to take a huge left-turn.

Did you forget about wire transfers? At least where I live it is possible to live without touching physical money for a long long time, we have pretty advanced e-banking and m-banking (and we never had checkbooks). Yes id does involve the bank, but from the end user perspective it is almost no overhead and sometimes even saves the trouble. Is stuff like direct-debit even possible with bitcoin?

I haven't heard of any, but AFAIK there's nothing preventing someone from writing a wallet that allows automated payments or the equivalent of direct-debit, with or without the involvement of a bank.

Direct-debit is undoable. That's one of its key-features.

You can add direct-debit to bitcoint with a trusted third party. (And there might even be clever ways to do direct debit in bitcoin without that third party.)

CoinKite [0] is a new Bitcoin debit/merchant machine company based in Toronto. The key to driving Bitcoin's value is increasing its utility, and this is done by enabling every day transactions.

CoinKite will be interesting to watch.

[0] https://coinkite.com/

That is true for me locally also but you realise when you travel or do business international the current systems all fail to do their job.

I use my Visa wherever I go in the world without any problem, and for business money transfers are fast and easy.

I really fail to see what problem that isn't already solved in this regard.

That's because Bitcoins are relatively easy to buy and very difficult to cash out into real currency. Once enough people see how hard it is to liquidate their Bitcoins back to USD the realization will follow.

Wrong. Have you actually tried to buy a Bitcoin? If not, ask someone who has. At the moment, it's hard for Bitcoin novices to buy Bitcoins, and much less hard to sell them.

Actually, once you've been verified by an exchange (required prior to buying Bitcoins unless you do a private party sale), selling Bitcoins is easy; it's getting your USD wired/ACHed to your bank account that can be time-consuming. This is due to the legacy banking system, and not some problem inherent to Bitcoin.

EDIT: By the way, it's not "very difficult" to sell Bitcoins. If I want to sell a Bitcoin, I log onto my Bitstamp account, put in a limit order. When the sale is executed, I submit a short, pre-filled form for a wire transfer to my bank. I then wait a few days and the money is in my bank account, in USD. Not hard.

I think he's making a liquidity point. It may be easy from a process standpoint to cash out, but the question is how much the value of your bitcoins may change whenever you cash out.


Part of the value of dollars as a medium of exchange is that the value does not fluctuate greatly from day to day or minute to minute. In the short term, you can rely on prices remaining fairly stable.

I'm familiar with the term liquidity. However, you seem to be making a point about Bitcoin's volatility, which is completely orthogonal to its liquidity. An asset could have no volatility, but have very poor liquidity (e.g., a house under normal circumstances).

jnbiche, it's not letting me reply to you so I'm doing it here.

You make a good point, and my above explanation was a bit confused.

I think BTC faces both problems:

There's high volatility, driven by the current level of speculation and the fixed quantity of Bitcoins that exist on the market. This makes Bitcoin a fairly poor medium of exchange since it is unlikely to hold a stable value from one day to the next.

There's also (I suspect) poor liquidity, driven by the low number of people involved in the exchanges (compared to other assets and currencies). While it may be easy to exchange Bitcoin from a process standpoint, you may not be able to get a price sufficiently close to the last quoted price when you go to exchange for dollars. It may be more liquid than a house, but it is much less liquid than USD, EUR, GBP, etc.

Is my liquidity assumption mistaken?

> Is my liquidity assumption mistaken?

Unless you're an investment banker, yes. There are multiple exchanges that handle daily volume in the 10's of millions USD, with order books deep enough that you could cash out millions of dollars worth of bitcoin without moving the price more than a few percent.

That's nothing compared to what Wall St or the city is used to, but it is plenty enough liquidity for all but the most well off individuals, and growing. When the Winklevoss twins get their bitcoin ETF to IPO, I expect these numbers to increase by orders of magnitude.

Also, none of that is counting the significant volume of transactions which occur non-public or off-exchange.

>Is my liquidity assumption mistaken?

You're absolute (and obviously) correct about Bitcoin's volatility, but you're mistaken about its liquidity.

Bitcoin is quite liquid if you're in the U.S. and many other countries around the world. The only delay is the time required by the legacy banking system to wire or ACH funds in/out of your exchange account.

Interesting. I did some digging and have a few follow ups:

1) Bid Ask spreads vary by exchange and currency, but it seems that with the exception of BT China an MtGox, the bid ask spreads can be quite wide. Prices for BTC/USD also very a good bit by exchange, meaning the price a merchant sets might be influenced by which exchange they use.

[1] http://bitcoinwatch.com

2) The MtGox live chart seems to imply that an order of a few bitcoins (or a few thousand dollars) could have a profound impact on the actual price of BTC/USD. This does not seem particularly liquid to me, unless I misunderstand the chart.


No one is using MtGox anymore, exactly because it isn't very liquid (money hard to get in and out). Take a look at Bitstamp.

Well, your liquidity assumption is quite accurate in comparison to other currencies such as USD/EUR/GBP. For example on the mtgox exchange there seems to be only about 30 million US worth of volume per day which is quite low.

US/EUR seems to commonly be around 100 billion or so a day.

News flash: A transaction requires a buyer and a seller. If you bought Bitcoin, someone else sold Bitcoin.

That doesn't account for an imbalance in the number of potential buyers and sellers. It's very easy to buy a house for $100 million. Go to your real estate agent and say "Here's a $100 million. Buy me a house." It is, however, considerably harder to sell a house for $100 million.

What do you think determines the price? If you can't sell a bitcoin, you lower the price til you can sell it. If you can't buy a bitcoin, you raise how much you will pay until you can buy one.

The only reasons it is different with houses is because people are emotionally invested in them, not all houses are equivalent (and thus their value is unique per house), and liquidity is hence really low, and market prices adjust slowly.

Bitcoins are worth a thousand dollars because people who own them are not willing to part with them for less, and people who are buying them are willing to pay that much. This is economics 101. You can always cash out at the market price, unless liquidity is low; the only time that happens is in a teeny market or a crash.

So profound a concept, yet so simple, and often at the root of so much fallacious thinking. Thanks for taking the time to educate our economically challenged friends.

I'm not convinced.

It's only easy to buy a house for $100M if you have $100M you can spare for house-buying. And then you only get to choose from the rather limited range of $100M houses that are available for sale.

Similarly, you only get to sell a house for $100M if you have a house that nice to sell. And then you only get to sell to the rather limited range of people willing to buy a house for $100M.

But perhaps I've misunderstood. If you happen to have $100M burning a hole in your pocket, it's easy to buy a house that would normally cost $1M with it, because most people with $1M houses will happily sell them for $100M. But the parallel to that is that if you happen to have a house that would normally cost $100M, it's easy to sell it for $1M. Which it would be.

The point is the liquidity of houses is less than liquidity of cash. Likewise, the liquidity of bitcoins is less than liquidity of dollars. You can easily buy bitcoins(houses) if you have the money, but the reverse is not true.

>You can easily buy bitcoins(houses) if you have the money, but the reverse is not true.

With the exception of Mt. Gox, this is simply not true. It's hard to both buy and sell Bitcoins if you've not been verified at an exchange, but once you do that (not very hard), it's equally easy to both buy and sell. The only delay is the time needed for the wire or ACH to arrive.

I get the feeling that many of you are talking confidently about something you have no experience with. Where are you getting the idea that it's hard to sell Bitcoins?

How is this true? Everywhere you can buy Bitcoins will let you sell them with roughly the same effort involved (except MtGox perhaps).

Is the market price of houses $100 million though? No? That's what I thought.

There is no balanced ledger - Bitcoins can be spun into existence through mining, i.e. without the transfer of hard currency.

Mining is strictly planned, everyone knows how much and when will be produced. New bitcoins are already accounted for in the price.

Yes, but did they cash out into real currency? There are lots of "US dollars" on MtGox sitting in the accounts of people who sold bitcoins. It's clear someone has the US dollars; it's not clear it's in the hands of the sellers (or ever will be).

I'll happily cash your bitcoins out into real currency at ten cents a bitcoin.


Bitcoins are a currency, there's no need to convert them. It's just happening now because some people want into this environment.

>there's no need to convert them.

Have you tried paying your taxes in Bitcoin? The IRS (or regional equivalent) is not going to accept bitcoin any time soon and they will want you to pay taxes on, for example, profits. There is a need to convert, don't believe otherwise.

Taxes is not the big problem. Try buying a meal or filling up your gas tank or rent an apartment or paying an electricity bill with bitcoin. 99.(9)% of merchants you'll encounter in the course of your regular life accept local money and about the same do not accept bitcoin.

Out of curiosity, are people seriously using bitcoin stocks as a bank? Or are they just investing part of their money in bitcoin and hoping it goes somewhere? This requirement of conversion only makes sense if people are fully and completely invested. I would be shocked if there were such people at this stage.

There are indeed people at this stage.

No, but I imagine coinbase has. As will many other people who accept bitcoin payments.

It doesn't matter, you still have to pay your taxes in USD. Even if you earned your salary in bitcoins you would have to convert some to USD in order to pay your taxes.

And if you're a multinational, you'll have to convert all sorts of currencies in all sorts of other currencies constantly.

Companies regularly complains that this costs them 1% or so of revenue.

>Have you tried paying your taxes in Bitcoin?

Not yet.

I think these kinds of views are what make the bitcoin community seem ridiculous ... It's just constant downplaying of actual upplaying of conspiracy like goldbugs do and it just seems hard for serious and educated people to take seriously.

I'm not downplaying anyting. Bitcoins intention is to be a real currency. You don't turn your dollars into Canadian Tire money to shop at Canadian Tire.

Saying you're not supposed to convert bitcoin is the statement of someone who thinks bitcoin is NOT an investment. So... not a goldbug.

There are only two ways that you could have a work where Bitcoin does not need to be converted to other currency:

1. People stop bothering to follow the law, and governments throw their hands in the air and do nothing about it.

2. Governments start accepting Bitcoin for tax purposes.

I am not confident that either of these will happen...

>Bitcoins are a currency, there's no need to convert them

Yes, unless you want to, you know, buy something...

I suppose there's nothing I'd ever want to buy from one of the merchants advertising here: http://www.bitcoinblackfriday.com/

Woo, bacon lollipops, server hosting, and pizza. Truly the essentials.

You need grocery stores, gas stations, clothing stores, and restaurants to start accepting it. Until then, it's really just a novelty for middle class college Libertarians.

I love saying this:

Do you think that cryptocurrencies spring fully-formed from the forehead of Zeus?

No, but I think they are not destined to become gods either...

No, but maybe Minerva?

Possibly Eris?

If your available merchant options fit in a page, and contain "sriracha-bacon lolipops", t-shirts, honey and donations, you might as well use monopoly money...

Many businesses accept Bitcoins as payment for physical things. The last Bitcoin meetup that I went to was at a bar/grill that accepts BTC as payment. Most of the attendees paid for their drinks with Bitcoin. You don't need to convert to cash in order to buy things with Bitcoin.

"Many businesses" is a very relative term. A more accurate term would be "almost no businesses."

"Many" as in? 0.0x%?

That bar/grill is a novelty -- and it probably only accepted BTC in the first place because there was a BTC EVENT held at it.

How long did the transaction take?

well use it as it's intended, buy something in bitcoins.

There's even projects that accept donations in bitcoins, you'll see wallet addresses like this: 1JBEGFXW6ywMtZnCbjvKGJXDtdR6g6KmMi

Their utility isn't tied to the fact that you can turn them into more of your favorite currency later, that stupidity is what's driving the current bitcoin bubble. Wait till people realize what you can do with them.

You realize this list proves the parent's point, not yours? Many categories there have a single provider and none would even breach 1% of providers in your vicinity. I would estimate the probability of not hearing "err... what?" after asking your favorite provider of anything about paying in bitcoins about 1/1000.

The problem right now is that Bitcoin is not (used as) a currency. A currency facilitates the exchange of services of goods. Bitcoin now is more like a plot of land in the middle of London, or gold a few years ago. You buy bitcoins to hold and speculate, not to spend and pay your purchases with it. The resurrection of Bitcoin as as currency after the bubble will be a very interesting transition to watch and it's not 100% sure that Bitcoin will survive it.

Sounds like nonsense to me: if you buy 1 BTC from me, then at the same time I've sold 1 BTC? That makes it by definition as equally hard (or easy) to buy as to sell?


Try buying an iPhone 3g right now on Craigslist. I bet it takes you all of two minutes.

Then try selling it. I bet it takes quite a bit more time.


That would imply there are currently more people wanting to sell an IPhone 3G than people want to buy it. Certainly the price of IPhone 3G's isn't rising. And that makes sense.

Currently (and for the last years), the price of BTC has been rising implying that's actually easier to sell BTC than to buy? Moreover there are exchanges that are entirely symmetric (when opening accounts you do not need to qualify as a buyer or seller).

Asymmetry is a nice word but I don't see what's asymmetric here?

I'm not familiar enough with Bitcoin to engage in dialogue about its market dynamics specifically. I only wanted to point out that the mere fact that all sales involve both a buyer and a seller doesn't make it "by definition as equally hard (or easy) to buy as to sell".

Depends on who is in the middle of that transaction and how long that one takes to fullfill that operation, in this case, exchanges.

Are you all really having trouble understanding how instability in currency makes it difficult to trade in a currency?

Also there is some basic lapse in logic here. Just because a WoW nerd can trace the currency on a technical level, does not mean it is "easy."

Howso? If it's easy to buy BTC with USD, doesnt't that imply successful liquidation of BTC?

If it's easy to buy subprime mortgages with cash does that imply it's just as easy to sell said subprime mortgages for cash? Substitute any illiquid asset(relative to U.S. dollars) if you wish and the statement holds true.

I think the asymmetry revolves around the ease/difficulty in getting USD in and out of an exchange like mtgox. You can take physical paper money to the bank and transfer to an exchange, no problem. You can buy BTC at the exchange, no problem. You can sell your BTC at the exchange, no problem. You can transfer USD from the exchange to your bank and withdraw physical paper money, maybe a problem. Perhaps a slight delay.

I'm sorry, but this is simply not true. It's plain wrong.

> Bitcoin befuddles experts

Why is this guy an expert? He was an equity analyst for a long-time, but obviously not good enough to get rich. And there are thousands of Wall St. analysts walking around in NYC. I wouldn't even trust their opinion on equities, much less something new. Never read opinion pieces written by journalists.

I can't help but think a lot of these "experts" can ONLY see from their narrow perspective. Bitcoin the protocol is just scratching the surface.


Even if you take the assumption that bitcoin will fail, the problems/issues the protocol or something similar solves are far too beneficial to ignore.

So basically if bitcoin fails, some other similar form of digital currency will rise up in its place. I feel as though its a 'cat is out of the bag' scenario.

Yes it does seem like bitcoin is lacking in a few places. You could (try to) add things like

* disconnected operation (solve the double spend problem in a disconnected setting) (this would really make something gold-equivalent)

* a provably correct, but cryptographically secure ledger (meaning real anonymity)

* proof of work based on a single crypto standard seems risky. Use 5 of them.

* provably no way to compromise the network even with overwhelming computational power

Zerocoin is trying to solve the second problem.

Combining 5 proof of work standards just gives you 1 new one. (There might be some robustness to be gained, though.)

Cool, I didn't know about zerocoin. There goes my afternoon.

"Experts are clueless" -Steve Jobs

"Steve Jobs is dead" -God

"God Is Dead?" -Black Sabbath

> 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.

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.

They can't magic up their own, but they can issue bitcoin-substitutes, in the same way that banks issue dollar-substitutes in the form of USD credits on your account, redeemable for 1 USD worth of debt owed to the bank.

It's an open question whether such substitutes will trade on par with the real "in-blockchain" thing. Personally, I doubt it.

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.

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?

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.

They couldn't. If you pegged the price to one, there wouldn't be enough units for everyone to buy anything they want. Remember that there are only 12 million of them, and only ~20 million will be ever available. Tying their value to one would mean that the size of whole economy would be only 20 million USD, which is pocket money on a global scale.

what gain?

you are proposing taking for example a $100usb product and selling it for 100btc... which at current market value is the equivalent of over pricing it to $100,000usd. Who would buy that when they could pay $100usd for it instead or convert 1btc and functionally pay 0.1btc for it instead of 100btc. What global goods providers would mark up their wares 1000x and who in their right mind would spend anything on that.

Sure, if BTC was worth > $1usd and you were selling them at 1:1 everyone would leap to do that because now they are GAINING by spending their BTC with you.

But your proposal means they loose 1000%. I don't understand what motivates this switch over.

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.

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.

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.

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?

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.

You don't seem to grasp the basic concept of markets.

Issuing more buy orders cannot cause a drop in price.

In your scenario, you propose that large businesses around the world issue a practically limitless number of buy orders on BTC, supposedly at a low-balled price, supposedly inducing people to fulfill those orders...

You can't affect the price of anything buy flooding the market with an enormous number of low-balling buy orders. You can create a floor, but that puts a lower bound on how far bitcoins can call - it doesn't induce the fall.

That's complete nonsense. It would take virtually every merchant to partake in your fantasyland to have even a slim chance of convincing bitcoin holders to take massive losses. And only one Silk Road to retain bitcoin's viability.

And you apparently forgot that the total number of bitcoins is severely limited (around 20 million).

If BTC is trading higher than $1, everybody would buy the undervalued BTC for $1 and sell at the market rate. If BTC is trading lower than $1, everybody would buy BTC at market rate and sell the overvalued BTC for $1.

Both cases lead to significant losses for whoever is trying to peg BTC to some arbitrary constant value.

Because Internet. Because disruption.

Wait, you can't use logic when it comes to money!

What are you, Satoshi Nakamoto?

This makes no sense. If, say the IRS, pegged the exchange at 1 what difference does that make? There are not infinite bitcoins and the IRS certainly wouldn't have all of them. People VALUE bitcoins which is why they pay a lot of USD for them.

People value goods and services. They use currency to denote the value of these goods and services.

If enough goods and service providers pegged their BTC/USD exchange rate to one, the initial BTC speculators would take a bath.

But subsequent Bitcoin users would receive the benefit of Bitcoin transaction technology and the benefit of the US government's fiat currency for monetary policy.

In a sense, it's true that the value of a currency is how much you can get for it. The problem is that you can't just peg it at a value, bitcoins supply is limited.

Imagine if every goods and service provider pegged their unit product at $1,000,000USD. The VALUE of the US dollar would drop immensely. What force could actually make them do that though? Because no one's going to pay a million bucks for a big mac, unless they have 4 billion in the bank at least. Something that can't happen to bitcoin.

I tried doing this on MtGox with a buy limit price of 1$. I didn't get any bitcoin :(

I do have a friend with 900btc though: I told him I was in the market for a dollar, and he just gave it to me, no questions asked. I wonder where he got it from?

Can I get my tax return in BTC at 1:1 please? please?

But we're seeing a layer appear with companies like Bitpay that solves the volatile exchange rate issue.

Also, don't forget that people like to come out on record for/against hot ideas/topics/predictions. In the event they are right, they ride the success all the way to the fame and monetary bank. If they're wrong, such an article is usually forgotten and lost in the sea of bitcoin press.

I'll jump on this and say that the script issue is irrelevant to Bitcoin's success.

In fact, I would argue that the script functionality is a huge flaw in bitcoin, probably the largest flaw. The existence of a scripting language within the transaction log makes it much more difficult to analyze whether I hold bitcoins or not -- my ability to spend bitcoins "held" in my address is contingent on my having additional information at the time that I post the transaction.

Having a generic proof-of-work-chain-based cumulative notary service might be valuable in and of itself. But bitcoin's value as "money" is independent of that functionality, and in the long run, the complexity of that scripting language and the difficulty of answering the question "have I been paid" will become problematic.

"my ability to spend bitcoins "held" in my address is contingent on my having additional information at the time that I post the transaction."

Fortunately software excels at automating tasks like this.

You already need software to scan the entire blockchain to determine address balances, is it really that hard for it to keep track of non-trivial unspent transactions separately?

Yes, software can automate the task of redemption for specific types of transactions. But not being able to answer the question "how many bitcoins are at this address" seems to be very problematic.

Instead, you'll have a ton of publisher clearing house style "you just received a million bitcoins" notifications, once they enable more of the language in the client. It just seems confusing and unnecessary.

Can't one just simply check the nature of the transaction to see if it has any conditionals? It isn't hard to imagine those features being added to blockchain related web services, such as blockchain.info.

Sure - so what do you do if there are conditionals? In the full generality of the language, it will be hard to offer an experience to the "recipient" of the transaction that is not confusing.

It doesn't seem to do any of these things very well. And in any case none of the uses suggest that the value of a bitcoin should increase substantially.

IS this all really that big of a deal? Everything you've described above shouldn't really shatter any sort of economic models, it just increases the velocity at which money is exchanged, and reduces any frictions that might occur during transactions. Nothing that can't be accounted for in existing models.

You could have said the same for PayPal.

Are you saying PayPal has upended monetary economics?

Has bitcoin?

Or a failure, depending on one's perspective.



Calling it a failure without making a rationalization about why it's a failure could be considered a failure in itself.

Well said. You should paste this comment into the NYTimes comment section, it clearly articulates the issues (even for the technologically inept), of which none were discussed in the article.

Befuddles eh?

I'll just leave this here... http://www.befuddled.org/

Amazingly useless!

I think most people only care about its failure in the 'money' sense.

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.

> 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.

Not quite. The confidence in "normal" fiat currency arises not so much from government backing, but from the fact that a well-managed national currency envelopes the GDP of a national economy. Government really needs fiscal discipline to not break the system (the consequences are well known); the trust part comes from the health of national economy and intersection of interests of all involved players.

Consider a major issuer like USA or Eurozone. The strength of their currencies stems from strength of the backing economies. In theory, the government could try fooling the system and run the printing press amok. In practice, such a government would be very short-lived, as it would piss off just about every person with money.

Save for outliers like Zimbabwe, there aren't really many cases of modern governments running themselves in the ground like that. Usually, runaway inflation is a consequence of a catastrophic event in the economy (bubbles, wars, loss of markets and other externalities).

Now, a super-fiat currency like Bitcoin is not backed by anything like that. It is a virtual construct with finite supply, and crypto is just a production vehicle here. It envelopes no economy, so the all trust here comes from compound interest of people who invest into it.

In addition, there are various measures a government or a central bank can take to stop or at least slow down escalating inflation. If there was a sudden loss of confidence in BitCoin (or more realistically, people lost confidence in other people’s confidence in BitCoin), such hyperinflation would spread and escalate with the speed of light with nothing to stop it. This kind of volatility might be interesting for speculative investment purposes but not incredibly useful as currency.

Then again, it’s entirely possible that we will be proven wrong.

The bitcoin price won't stabilize until it's operation literally dictates demand.

Once for all practical purposes everyday life is handled in satoshis, how does an economy expand?

Just like gold standard economies expanded in the 19th century?

How was that? Not being snarky, I'm just wondering what you mean.

I'm not sure how to answer that question. An answer would either be horribly generic or extremely long (or both). I suggest you start reading some history books (or just start on Wikipedia).

Basically, a full bitcoin economy is a bit like an economy on a gold standard. Not perfectly, since gold is still being mined, and the rate of mining depends on its price.

Ok im following you. Maybe the differentiator is the divisibility of coin vs gold, and transferability.

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.

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.

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.

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

"why not just use dollars"

Simple: as a merchant, I really like Bitcoin because it reduces fraud to absolutely zero for me (transactions are irreversible)!

Also, if you're selling stuff on the Internet, you can finally accept payments from countries that didn't receive Visa's "blessing".

Because bitcoin acts as a proxy between the buyer's local currency and the seller's local currency, regardless of what those are. Particularly in the case of digital goods, this opens a buyer up to accepting business from anywhere in the world.

I would argue that it doesn't make sense for the average merchant to keep holdings in BitCoin. Most merchants have no desire to take on currency risk (http://en.wikipedia.org/wiki/Foreign_exchange_risk). They're not in the business of speculating, they're in the business of selling things.

>>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?

By this logic you should put all your available cash into bitcoins right now. Are you? If not, why not?

I don't put all of my money into BitCoin right now for the same reason I don't put it into any other promising investment. The simple answer is that I don't know everything and something could come out of left field tomorrow and demolish BitCoin's value. A bug in the software, more overbearing government regulation, some government in the world (not the US, I don't think) banning BitCoin, etc.... I'm betting that this won't happen which is why I have as much as I do in BitCoin right now.

You can also pay in tulips.

Nice observation. Yes bitcoins are exactly like tulips but moreso. In fact, in the future, bitcoin prices will drop below zero and these idiots will have to pay others to get rid of them. I'm looking forward to the expressions on their dumb faces when they realize they are in a pyramid scheme balanced on top of a bubble resting on top of a bridge over some swampland in Florida.

That would probably be the case if any of us were stupid enough to put our retirement savings or anything that we critically need into BitCoin. The smart money is on putting an early investment in, waiting till it doubles or triples then pulling the initial investment out. That way you literally can't lose - at the very worst you break even. Most people have put a quite expendable amount of money into BitCoin. Even without pulling it out, I could stand to lose my initial investment completely right now and not break a drop of sweat.

Well, you are doing it right. We know from all bubbles past, though, plenty do it wrong -- all in and even all in on credit cards.

Do you not see how this makes bitcoin irrelevant. What do the merchants do after they take the payment, now they have worthless bitcoins.

Most Bitcoin payment processors provide merchants with direct bank deposits. It's really little different to using a credit card processor, except the rates are cheaper and the audience smaller.

Personally, I don't believe in Bitcoin either, but one thing I was considering is that Bitcoin is usable as long as its value isn't 0 (though it might be incredibly difficult to use with fluctuations).

So the question is will it crash to 0? Seeing the price soar to 1,000 means that people in the future might always be willing to purchase it at some price, hoping that it will return to that level.

Though, as it stands I don't think speculation gives it credibility. People who believe that are creating the positive reinforcement cycle so common in economic bubbles.

this is the root of my belief as well -- that it is a speculative farce, but so long as it is above 0 it will continue to be in use.

Another poster made me aware of this joke that I think summarizes Bitcoin pretty accurately. http://www.getamused.com/jokes/pennystock.html

Only in this case it's not a single buyer.

Only in this case it's not a single buyer.

i.e. completely invalidating the comparison.

That's not true, there could be multiple buyers and the punchline would just be, "to whom? there's only the three of you."

That punchline would make no sense. The client would reply "to the market of two buyers".

that's right, I had a momentary lapse in judgement, sorry

But a few days later the second person would sell and then we would be back at the punchline for the only remaining stock holder :)

Have you seen the interview with Bobby Lee recently? I think he made a great point. They asked him if he is worried that the bitcoin fluctuations undermine bitcoins' ability to function as a currency and discourages merchant adoption rate. He said that's what he initially thought as well, but since has come to the conclusion that bitcoin has to be seen foremost as a store of value and only through the "confidence" as you put it in a long term storage of value will the adoption as a currency eventually come all by itself. So he is not worried at all.

Found the link: http://www.youtube.com/watch?v=zz_yfB72S9c

"There're ample historical counterexamples of currencies that are not tied to a government. Gold is the most obvious example"

...governments were accepting gold for tax purposes, kings were filling their treasuries with gold, armies were sent to steal gold from other countries, etc. Gold was absolutely tied to government when it was used as currency, and I am using the past tense here because gold is not a currency outside of a few highly niche markets.

"What really makes a currency is confidence"

I think you are confusing confidence with demand. What makes currencies work is demand -- the fact that everyone in the market demands the currency. Typically this happens because of a government, or more precisely because of a government that enforces certain laws.

"so can strong crypto"

Oh yeah? Let's just assume that Bitcoin actually qualified as "strong crypto." I'll release my fork of Bitcoin that is identical in every way, but happens to have its own block chain that I started using this post. How successful do you think that will be as a currency? Why can't we all just create our own personal block chains (and thus all be rich)? There is more to the story than "strong crypto."

Network effects.

Interesting that the speculative wave responsible for the growth of bitcoin is blamed for what is preventing it from growing.

Not very convincing. If anything, the speculative phase matches the growth process bitcoin enthusiasts have predicted.

It's possible that bitcoin simply functions as a casino (or "volatile asset") instead of a medium of exchange, given the large demand for gambling.

I agree with everything you said, but why couldn't/wouldn't the currency emerging from the ashes be Bitcoin itself?

> 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).

wut. you do know what middle-ages, gov't issued currency was made of, don't you? and who funded the new world expeditions? and for what reason? and you do know that even given the spanish crown's desire to repay their debtors, the bulk of that gold and silver windfall ended up going to china to fund their switch away from paper money by the Ming dynasty?

acting like gold != governments is... well, frankly, it's ignorant.

This assumes that stability comes from a lack of speculation. This is not true. A majority of any modern currency's stability comes from its government's ability to ease and tighten the money supply as they see fit.

What you describe is the failing of bitcoin itself. What the author discusses is the failing of all electronic, not-gov-backed currencies. I think as with every new thing we can be sure that bitcoin will go through a lot of trouble and the string b-i-t-c-o-i-n might be unusable in a short future. But pure electronic currencies will still strive when happen what you explain. What the author discusses are problems that will make all electronic currencies fail. So both topics can be discussed, but they are not really the same thread. And you might actually both be correct.

Also, with gold, there is intrinsic value beyond the monetary - jewelry use, or in these moderns days in electronics. That provides a value floor. Bitcoin doesn't have that.

Something that might be considered an "intrinsic" value of bitcoin is its ability to instantly and securely transfer wealth across large distances at zero or near-zero cost. This is an feature not present in some of the incumbent currencies and store-of-value assets.

For example, physically shipping hundreds of kilograms of gold (or physical, folding USD) is a costly exercise fraught with security risks, and the risk profile varies depending on many factors, for instance the political situations in the sending and receiving countries.

Transferring large amounts of electronic USD across international borders via the traditional banking system is going to invoke all kinds of reporting requirements, and possibly higher transaction costs (though you can do large wire transfers for like $25 I think).

Transferring arbitrary amounts via bitcoin is easy, secure and the transaction itself is cost-effective (notwithstanding the current relative difficulty/expense of moving large amounts of fiat currency into and out of bitcoin in the first place, which problem I'd expect to ease as the btc economy matures).

This intrinsic value can be mirrored by any cryptocurrency or even just a parallel network of Bitcoin. It is no justification for $1000/coin the way overzealous BTC investors claim.

$1000, for 1/12000000th the total current supply of bitcoins in existence? Sounds like a deal to me. The same fraction of USD is $100,000. There are 313 million people in the US. These are the majority of people using the dollar. There are 1.35 billion in China and another 1.2 billion in India. The former has already started using bitcoin. But only just barely. The market for bitcoin is enormous.

Now let me ask you: do you really feel a global currency is worth less than $12 billion USD? The market cap for Facebook is $113 billion. Call me crazy, but I think there is more long term value in a digital currency with the properties of Bitcoin than a social network.

In order for bitcoin to be useful, it's going to have to grow. If it grows fast (network effects) then you'll get instability. I don't think there is a solution to this unique problem. The fiat solution of printing more money doesn't apply here. There has never been a sudden rush to USD like there is to bitcoins. If you can even call a few billion dollars a "rush". If bitcoin is to be used, then it's going to see $1000/coin and beyond.

my god this is psychotic.

i'm sorry, i try to be polite but.... jesus.

i am 1000% confident that this particular bitcoin implementation of global currency is worth less than $12 billion USD. you are treating this currency like we are dividing up slices of the world money supply. We are not. People are paying $1000 and basically receiving an IOU from no one, with the hope they will be able to sell to future speculators.

If Bitcoin succeeded as an actual currency, it would be trivial to implement new blockchains and many such systems would exist in parallel (Litecoin, Ripple?). But so far, Bitcoin has proven nothing regarding stability, it is just wowing naive investors by increasing in value rapidly.

The problem in your analogy is that Facebook never sold accounts for $1000 because people are not that stupid, except when they start seeing $$ signs flash in front of their eyes. And why does it need to keep increasing in value if its divisible to like 6 decimal places? It's perfectly usable as a currency now. This is the internet, who the fuck needs WHOLE NUMBERS.

Just....... jesus, man.

Is there any chance of you giving it a rest? We get it. You think Bitcoin and Bitcoiners are stupid. You passed Intro to Econ in college. You've drawn completely arbitrary lines in the sand and given nothing to justify them but emotional appeal. You, like many others, seem to waltz into every thread thinking that you've just independently come up with the fatal flaw of Bitcoin as it chugs along it's third year of existence.

You display a nearly D-K effect when you act as if these are foregone conclusions with your "Just....... jesus, man." Especially after the catastrophe that was the last paragraph about price&divisibility. It's completely nonsense from an economic perspective. And there are clear benefits in using a highly divisible currency (and especially since it can be represented as a whole number... rather than a float. Ironic, whoops).

Also if you want to be more interactive than your peers, will you answer a scenario for me? Now, I am actually asking for your opinion on this, not being a smart-ass. Ready? Let's go.

If we had a bunch of "units" of something we have 1 each and there are 10 total. We use them to buy melons and each 1 is roughly valued as 1 melon. Then people see the success our new system is having and want to use our units to buy melons as well. So, one of the 10 friends decides its a smart idea to sell his unit for 2 melons to someone who really wants to be a part of our cool club. The next day someone else sells their unit for 4 melons because even more people want in.

Is every unit now worth 4 melons now just because someone sold one for 4 melons to an outside trader? If I go to the store where I used to buy a melon for 1 unit and tell them now that I think I deserve 4 melons for a unit, what will they say?

Explain to me how you think storeowners should react or how Bitcoin is unlike this. Sincerely, I will listen as best I can.

> Is every unit now worth 4 melons now just because someone sold one for 4 melons to an outside trader?

Well, yes. That's why currencies increase in value, because they're in demand. That's why the value of the pound or dollar or whatever goes up and down.

> If I go to the store where I used to buy a melon for 1 unit and tell them now that I think I deserve 4 melons for a unit, what will they say?

Who knows? They might refuse to sell at that price. They might see that if they don't sell to you, you're likely to import melons more cheaply than you can buy them locally.

The storeowner should react by buying melons in bulk using his units and then selling them to you more cheaply than you can import them yourself. Bitcoin is not unlike this. It's the same. Things are worth what people are willing to pay for them.

My intuition says that the storeowner has no reason to accept. I think what a lot of the merchants are doing is using 3rd party processors, basically just saying "Fine yeah I'll take it" as long as a Bitcoin buyer is already lined up (which is essentially what a 3rd party exchange functions as). That way they get cash less transaction fee.

But really even if they accept Bitcoin for 4 melons that doesn't mean they have embraced Bitcoin. It is just a credit to the power of Bitcoin's infrastructure that the trading network is there to accept the coins, no?

That's my biggest worry. Bitcoin culture seems to believe that at a certain point all individuals will give up resistance and embrace/adopt Bitcoin, whereas there are many many barriers standing before that and I believe it is only the trading network that is strong. However, I do not believe Bitcoin is a stock, so I'm not sure what it is.

What do you think, sir/madam phaemon?

> My intuition says that the storeowner has no reason to accept.

Well, of course they don't. Things have just got worse for them. But that's exactly what happened to many local retailers when their customers realised they could get stuff cheaper by ordering over the Internet than they could buying locally. It's just how things go.

> However, I do not believe Bitcoin is a stock, so I'm not sure what it is.

It's an infrastructure. It happens to have a currency built in on top of it, but at heart it's an infrastructure. Its worth depends entirely on what people do with it, like the Internet itself.

So, it's a little meta to consider what a currency that's an infrastructure is worth in it's own terms, but no-one has to decide that....just let people pay what they want for their share.

eh you lost me, man. he still has the option to only take USD or use a 3rd party payment processor. At the moment, it seems that this approach is not costing any businesses in sales, since Bitcoin is still used infrequently as currency. The only point it actually becomes a currency itself is when the shop owner stops using a 3rd party processor and says "you know what? I'm comfortable just holding onto these". With the market volatility of Bitcoin this is unlikely to happen for a while, unless they are among the believers who think the value can increase indefinitely and accurately represented by trading prices.

I definitely understand the value as an infrastructure, but this is the web. Better solutions will emerge and could just co-opt the Bitcoin infrastructure. Like the way ISPs came in and bought access to the data lines of phone companies, same idea.

> eh you lost me, man. he still has the option to only take USD or use a 3rd party payment processor.

Uh, no he doesn't. He only takes Units. We're talking about your hypothetical melon salesman, remember?

> Better solutions will emerge and could just co-opt the Bitcoin infrastructure.

Probably. I would certainly hope so! That doesn't stop Bitcoin being valuable right now and new solutions being more valuable in the future. There's no reason not to have several competing digital currencies on the go.

Eh I get where you're coming from, but I'm tired of this shit too. this one really got to me. It's not that I think Bitcoiners are stupid, it's a combination of a few things --

All these threads are "Yay Bitcoin reached a new price plateau, proof that it's perfect!". So finally they pick an article that says it's a mess, but the thing is it's pretty much the dumbest article ever.

So then the Bitcoiners use it as a straw man, coming on saying "See this article's author is dumb he doesn't have our enlightened view of economics.... If you divide all the world's money by the number of Bitcoins I'm so rich!!!"

I'm sorry but even 3 years existence proves nothing, as there are many screwed up things in history with longer lifespans than that.

So yeah I'm frustrated as hell because this is pretty much the spam of the tech world now but it's front page news on HN every 20 minutes with some new story like "Researchers believe Bitcoin founder once visited zoo in Denmark". One could argue that it is a cargo cult, one could argue that it is a success, a failure. Many things could be argued.

The one thing that I think is for sure is that this whole phenomenon is tabloid-esque garbage that is mostly servicing greedy arrogant Bitcoin holders and their machine, since publicity seems to be one of the only true price correlates (nothin odd about that, huh?). I'm probly gonna get off this bent just because it's not worth the time but without the detractors Bitcoin is just like a digital Jonestown - every post is met with more mindless optimism and every criticism with a response that is a complete non-sequitur followed by boo-hooing about hurt feelings and poor etiquette. I'm not on an online forum to get popular agreeing with everyone I'm here to test the waters and see what kind of knowledge is floating around.

Those I've had arguments with fail to articulate even simple points. For example -- I agree that using a highly divisible currency is good. That was, in fact, my point. My issue is that a frequent explanation for the rapid price increase is "Well it's natural that the coins are going to gain a lot of value. Heck, maybe Bitcoin will surge in the real estate market and 1 coin will be worth a whole house!". With a highly divisible currency, why would the unit price have to increase to represent some arbitrary figure in the market (a house in this case). Because it seems logical to people? Because there are only a limited number of Bitcoins in circulation so of course there is scarcity and rather than using a different currency that can release more we simply have to bid the price up because "well, SN is god after all"?

If anything the fact that I want to argue should show that I do respect the potential of the community in that I actually want to take my time to interact with them. It shows that I give them the benefit of the doubt that even though I disagree I still think "well let's not write it off as a cult just yet". But when I get responses that are as cock-eyed and zombie-ish as the one above ("why analyze supply and demand curve when soon the entire planet will soon be bitcoin?!! i will own your country merely for investing now.") i will probably continue to lose my shit. So yes, I will need to stop looking.

But the value floor for the USD is effectively the tax obligations denominated in USD, which is 5.5 trillion. Meaning a hell of a lot of powerfull people have a legal obligation to collect -at least- 5.5 trillion USD.

This provides a much higher value floor, no ?

Any protocol could come along and displace http, or a parallel internet could come along and displace it. But we're going on 22 years now and that's how we're communicating.

What if these protocols are not so easily displaced as you imagine?

yeah as ars mentions, it's already happened... plus there is litecoin, buttcoin, etc etc

When people compare to internet & DNS & things like that I get kinda pissed off. Those are standard protocol that we agree to because it helps ensure successful communication. Bitcoin is not anything like this stuff, it falls more into the category of "some code that runs on the internet".

Think of it more like a website (Facebook) instead of providing the false analogy that its like the internet itself. If Facebook were an open-source trading platform and it started looking askew, what do you think people would do? (hint: open-source)

Bitcoin is a (peer-to-peer) protocol. It runs on port 8333/TCP. It "helps ensure" transactions are recorded successfully and permanently.

Very much fits the analogy with Internet or the web.

Actually there is no buttcoin (other than the website), which is the proof that you are a troll.

if making a mild semantic error regarding the universe whose fundamental premises i believe are flawed makes me a troll, troll i am

ad hominem is bad enough dont bring in semantics please. in bitcoin there are 3 types of people -- hypemongerSpeculators, techDesigners, nonBelievers. The hypemongers call all the nonbelievers trolls, the trolls talk trash to the hypemongers for blindly defending a greedpile, and the techDesigners (who are supposedly the enlightened HN readers) generally don't care.

The only reason I even bring these arguments here is cuz all the HN headlines are hypemonger trash. I'm readying myself to accept this model of Bitcoin forums and move on, lol

The chain has already forked before. The community so far has managed to agree on which to follow. That might not be the case if a government like China interferes with the protocol, splitting it into two very active forks.

Bitcoin's security against double-spending is proportional to how many clock cycles are spent mining, which is affected by the price of Bitcoin. A parallel network with a far lower market cap would be less secure.

$1000 per coin is speculation, but it's not particularly different from a startup people are buying into purely because of where it might be in five to ten years. The effect on Bitcoin is magnified somewhat because the maximum number of shares is capped.

Unless something radically better than Bitcoin comes along, I don't see it being replaced any time soon.

Network Effect

I think you misunderstand me. I am talk about non-currency use. If the Bitcoin network collapses, you have nothing. The market for gold by definition cannot collapse to zero as it has non-currency industrial and decorative value.

If the electricity collapses, the light goes out. Stay away from LEDs.

Every bitcoin thread = groundhog day.

Seriously, in these threads there's hardly any middle ground between, "eventually these young fools will see they are standing at the foot of a pyramid of tulips," and, "fuck the police fuck fiat currency eventually dollars will be obsolete." Both sides are ignorant IMO.

Nope. Gold is used in limited quantities for plating pins in electronics, covering space helmets, and probably a few other things. It's really not that valuable for getting shit done and need a lot of it type of stuff.

The use of gold in industry is discouraged by its high price - if it were the same price as copper, you'd see more uses for it.

If by limited quantities you mean "about 400 tons a year" (and that's not counting dentistry or jewelry) then yes.

11,666,666 troy ounces

$15,108,332,470 at today's prices.

If you do count jewelry, increase those figured by approx. an order of magnitude.

400 tons a year is nothing compared to other industrial metals. By comparison, world production of copper is 17 million tonnes per year.

$150 billion a year is nothing?

The 150B figure is including jewlery/decorative use, for a total of 4k+ tons/year.

That price is due to the rarity of gold. If it were as common as copper, 400 tons would be worth a lot less than $150 billion a year.

What's your point? Sounds to me like you're trying to win the debate by inventing your own set of "facts"

The original point of discussion was the quantity, not the price.

For bitcoin it's easy to argue that it's useful for almost zero-cost transactions, world wide, with relatively short confirmation times. Other applications are being invented: cryptographic proof-of-existence (on top of the block chain) or perhaps also distributed/anonymous DNS.

You really need to see it as a powerful idea, not just a speculative asset

There was a mad rush to acquire gold from the new world, which promptly collapsed the economy of Spain.

In practice, no one suddenly got richer because they'd gotten all this new gold, they just experienced massive inflation (and forgot to peg their tax rate to it, so their revenues collapsed but their expenditures did not and they went bankrupt).

Because it turns out you can't eat gold nor make weapons or ships with it.

I love your point about pricing - was just thinking the other day about how I might accept bitcoin for an item. Presumably there could be a mechanism for determining the right price on the fly (similar to share pricing) but volatility would still be killer - hence there would be desire for a bartered item or non-volatile currency.

I have been thinking about this also and I concluded I would either account for the bitcoin volatility risk in my BTC price or by raising the dollar price.

Your examples have intrinsic value. This is pretty easy ...

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.

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.

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.

"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).

> 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.

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.

> if you don't have to pay taxes by working in an alternate currency, then you would obviously want to use that

Unless you want to legally live and do business in a country, in which case you're going to have to pay the taxes that country levies in the legal tender currency.

The value of the US dollar, in essence, is the value of being able to live and do business in the US plus the avoided cost and risk of doing so illegally (which is generally quite high).

You may have misunderstood me. Barter transactions and foreign currency transactions are perfectly legal. At that point you have no dollar income, so you wouldn't have to pay taxes _except_ for the fact that you do have to pay taxes on the dollar equivalent for those transactions.

Provisions like those (together with legal tender laws) are necessary to prevent people from abandoning the "official" currency wholesale. Thus it seems that denominating taxes in a currency is a huge negative for a currency _in and of itself_.

Edit: after reading further, I think I see the disconnect. I was thinking purely in terms of income taxes and sales taxes/import duties. For taxes in absolute terms, like property taxes or luxury taxes, then the government demands a certain number of dollars, which does mean I need to get that money, even if in my day-to-day life I don't use it, which creates a demand for the finite resource of US dollars. Still, the federal government in the US, anyway, does not demand any taxes of this nature, so it doesn't seem to follow logically that the taxes relate to the value.

The example in Graeber's book was the government pays soldiers in some currency it invents, and then taxes the non soldiers in the economy the same amount. The soldiers need to eat (which is important as they might otherwise just give the coins to the civilians). So the transaction of food for money makes sense, and the civilians can pay their taxes and the soldiers can eat, and the arbitrary currency has a measurable value.

Ah - this makes sense, at least historically. With a tax that is more of a levy rather than something proportional to receipts or income, then it makes sense. But like the Mises Regression theorem, this seems more to relate to the historical origins of money as opposed to current usage.

The author of the Article summons Graeber in an abysmal way. In 'Debt' Graeber proposes two main ideas, that the State is by no means necessary to have a great economy (he is an anarchist, with small 'a'), and that our current debt-based monetary system is a mess. Bitcoin is debt-free because no one needs to take loans or create bonds since bitcoins are mined. I think Graeber would be (is?) fascinated by them.

"Bitcoin is debt-free... since bitcoins are mined"

That's not true. Debt is perfectly possible with a fixed currency base, and mining or grabbing transaction fees is not a substitute for debt in any way. In fact, you can have a whole expansionary currency system on top of a fixed asset like BTC, in the same way that the USD was once convertible in and out of gold.

No, it is true. To describe a currency as 'debt-free' means that it is not created through the process of creating new debt. The way modern currencies like the dollar are emitted is through the generation of new debt (government bonds are government debt, and banks create new currency when they 'loan' money). The negative consequences of not paying what you borrow (forclosure, etc.) are ultimately what backs debt-based currencies. Graeber argues (and I agree) that it is therefore the threat of violence from the state what gives value to currency in the modern era.

Bitcoin is fundamentally different because new currency is created through mining. Yes, you could create a secondary market on top of Bitcoin that handles loans, but not new Bitcoins, therefore it is debt- free currency. When Nixon decided to decouple the dollar from gold in the seventies, what he did was effectively to move from a debt-free currency to a debt based currency. The move had huge implications in shaping the world until today, because it meant that the US became free to print dollars endlessly. The external market for dollars was solid because of the world reserve status, enforced through the US military. In this way the US could print away AND keep internal inflation very low in relation to the amount of circulating currency.

Breaking this cycle, which is what feeds the US empire, is why I think Bitcoin will in the end provide a great service to mankind.

I think you may have misread Graeber. He is NOT advocating for commodity/debt-free currency. His whole point is that money started as credit - only later was it viewed as commodity, and only occasionally.

Money effectively is both commodity and an IOU. Attempts to force it into one category or another eventually leads to social breakdown.

The key question for our time is how to craft a stable monetary system that is decentralized. We don't know how to do this yet, and Bitcoin is not likely the answer BECAUSE it is finite (which would be catastrophic, as gold was). Crypto currencies can and should grow in experimentation but this one has a fundamental flaw.


> We can't really go back and figure out the exact history of how gold emerged as money

actually, we can. it's called historical anthropology, and books upon books have been written on the topic. to summarize those books for you: the chartalists were basically right. standardized currency and thus stable markets took off once governments did what governments do: pass laws to standardize things. also, contrary to your assertion that the only "monetization" event was "how gold emerged as money", we've actually gone through a number of cycles back and forth between gold/precious metal-backed money and credit-backed money. metal-backed money tends to hold during periods of imperialism and warfare (where the expected lifetime of a given state is low due to risk of being conquered/defeated, and soldiers have high exposure to other markets), while credit-backed money tends to emerge during periods of stability and peace (where states are more stable and trust-worthy than the rate at which some given metal comes out of the ground).

Inflation is a separate issue. That comes from the nature of money, not its source. You can have a decentralized, distributed inflationary currency. See Freicoin for example.

Inflation definitely isn't a separate issue. It's a fundamental issue in the topic of currencies and money, as in deflation.

Inflation is the expansion of money supply. Once bitcoin reaches full supply, by definition there can be no further inflation from bitcoin. There can be price fluctuations in the value of bitcoin, but not inflation. It's necessary to differentiate between prices going up / down, as opposed to inflation / deflation.

"Price fluctuations in the value of currency" is the definition of inflation/deflation. Monetary policy can cause inflation, but it's not the only way inflation can occur.

Wikipedia: "In economics, inflation is a persistent increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy."

I'm not saying that Friedman is right but this is a thorny issue in economics:

   Inflation is always and everywhere a monetary phenomenon.
   —Milton Friedman, 1963

Sure, it's a monetary phenomenon, but that doesn't mean it always comes from monetary policy. In fact, the big reason monetary policy exists is to control inflation. Without monetary policy, inflation and deflation depend solely on the production of the economy compared to the relatively fixed supply of money. Which is what will happen if bitcoin takes off. Growing economy + fixed money supply = deflation.

So the GP was wrong when he said there can be no inflation by definition once all the bitcoins have been mined and the supply is fixed. Deflation (negative inflation) is pretty much guaranteed with a fixed money supply. There's more stuff to buy with the same amount of money, so things will cost less.

Consistent deflation will be very upsetting for the status quo. I'm not saying it's a good thing or a bad thing, but when the incentives shift towards keeping your money in a shoebox, and against using banks, taking or giving out loans, investing and spending, that's going to be a huge change.

However, with Bitcoin the percentage claim on the total economy is constant. So, in a sense, the real price of all consumer goods also remains constant. In this view there is no inflation or deflation and inflation indeed is a purely monetary phenomenon.

What is correct view? I don't know, the only thing I remember about the monetary economics class I took, is that the professor and I didn't agree. About what I don't know. I do know that these are interesting times for him and colleagues. When/if Bitcoin stabilizes they can study the effect of monetary policy, the PPP, etc. I almost want to become one.

> So, in a sense, the real price of all consumer goods also remains constant.

No, you're ignoring GDP growth. As the bitcoin economy grows (more goods and services available), the share of the pie 1 bitcoin represents correspondingly grows. This results in decreasing prices, i.e. price deflation.

That's right. Government through banks has to issue new money just to keep up and keep prices of consumer goods fairly constant and prevent deflation which is considered bad because last few times people tended to stuff cash in mattresses then and there was not enough physical cash left on the market to facilitate the trades. Also deflation increases tendency of consumers to save what they earned and noone in America wants that.

What I'm saying is that deflation is an arbitrary choice made by Satoshi in the construction of bitcoin. It is unrelated to the issue of state backing.

Bitcoin could just have easily had a perpetually increasing monetary supply. This literally would have been a single line change to the bitcoin source code. Freicoin does something similar with it's demurrage and perpetual reward.

Although I believe that what you say will be correct in maybe 10 years, currently this is not the situation in my eyes. Currently nobody fears bitcoin, because it is still way too low profile to harm anybody. And although their arguments might be wrong we all agree that bitcoin and even the general idea of crypto money can still fail because of a vast amount of reasons, right? The thing is at the moment no crypto money has a real success. Yes, thousands more people care about bitcoins than 2 years ago, but it's not a critical mass yet.

You're playing a strawman game here, though. Some of are just practical and live in the real world.

I think the idea that states co-opted money doesn't stand up to historical scrutiny. States have evolved for the purposes of providing situations where "markets" can arise.

I have to be honest though, I'm not an expert on the subject. Also, everything about the critique presented doesn't have to be false for the successes that bitcoin has had to be real. I think that bitcoin really serves as a form of regulatory arbitrage... its real value, the value that people are placing on it, represent gains that can be made by avoiding fees and oversight. Its an alternate currency that couldn't exist without a state system.

As for the inflationary ideas...I find it really very similar to gold or maybe some other more rare natural resource... don't all of the ideas about hoarding and "de beers" (sic) style monopoly still apply? I'm genuinely asking not trying to be a prick...

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

>> "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.

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."

Agreed. His entire argument boils down to "Money has never worked like bitcoin, so it can't possibly work." It's an absurd line of logic to use as a critique. It's like the RIM guys claiming no one would like iPhones because they don't have physical keyboards, and smartphones "have always had physical keyboards."

The authors also seems to lack backbone and hedges his bets with a final sentence. Something to the effect that bitcoin will continue to do well as long as government is not doing well.

Despite the link-bait title, he doesn't seem to want to make a definitive statement.

Is gold issued by governments?

No, and it failed as a currency.

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...

>>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.

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.

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).

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.

It 'failed' as a currency (after centuries) because nation-states with central banks found it disadvantageous for their overall economies.

That doesn't mean the currency itself failed, just means it was abandoned by those seeking to implement monetary policy.

It would be like saying P2P networking failed because vendors prefer the iTunes model.

I don't think gold failed as a currency, I could pretty much go anywhere in the world with a bar of gold and exchange it for currency to buy whatever I want. It is still a universal currency, although not an everyday currency.

Exchanging gold for currency doesn't make it a currency. Gold is an asset.

If you brought your gold to different people, they might all quote you different amounts, based on how easily the merchant or exchanger could convert the gold into their own currency.

Same goes for anything you actually buy with currency also.

It did not fail as a currency to the point that in most countries you can't legally pay in gold. That should ring a bell. Also lots of countries try to keep as much gold as they can to back their exchange rates.

But silver was successfully used as a currency for a long time in history of certain countries.

You are wrong. It didn't fail. It evolved into a more efficient currency model.

But did it fail because it was not issued by the gov't? Or due to other factors?

Then why do central banks still hold tons of gold?

It's mostly used as a "currency" storage, supposedly protected from inflation (which isn't really true, it gets mined at something like 2,500 tons per year).

yes, most gold-backed currencies were issued by governments and contained a significant fiduciary element (aka, one gold coin was worth more than its weight in gold).

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