11 ms·

BitCon: Don't

101 points by anu_gupta 14y ago

hawleyal 14y ago
FUD
jmtame 14y ago
Bitcoin transactions are permanent sure, but they have no identity tied to them, unless they were purchased with something that already had an identity associated (eg never buy Bitcoins with PayPal, because PayPal already knows who you are). If Joe wants to buy drugs, then he can walk into any bank and do a cash deposit to a BitInstant account, which gets dumped into MtGox and he can then move it around any way he wants, including online marketplaces. There's no identity that can be traced back to him except for the bank's video surveillance, and how long is that stored at a bank? Without the surveillance, there's no way to tie any transaction Joe does back to his identity. The wallet, the address, the marketplace (if done right using tumbling and encrypting all messages) all leave no trace to a transaction.
- chewit 14y ago
  How about whenever you try to take money out? How can you get money out without it coming to an account that is associated with you? Can't the coins be tracked from the illicit purchase to this point? I'm not clear on the process at all!
  - hilko 14y ago
    A site such as bitcoin-24.com allows you to create an account with no personal identification. It also allows you to send cash money (converted from bitcoin, usually) to an address. And if you want to avoid the address issue, you can (currently) use one of the many 'exchanges' at localbitcoins.com and pick it up personally. Hell, if that's too dangerous you can probably get a minion to do it for you. If the government ever cracks down on this kind of stuff, for example by making it harder to be a local trader at localbitcoins.com, then I have no doubt that a small industry of 'illegal traders' will appear, or methods of laundering the money.
- lurkinggrue 14y ago
  It would not be hard. We have seen over and over again how anonymous data can suddenly be tied down. Example: http://www.wired.com/threatlevel/2013/03/anonymous-phone-location-data/ http://www.wired.com/threatlevel/2013/03/anonymous-phone-loc... Remember: Attacks only get better, not worse.
  - jmtame 14y ago
    Wow, nice find. I hadn't thought about tracing the cell phone before, of all things. Practically, it seems like a stretch to try and look at GPS logs through a carrier and prove that someone was at a bank at a given time. It says the precision is down to 2 hours, so you can theoretically get to a bank, not make/receive any calls, and get back before that 2 hour window and nothing would ever be recorded by the cell towers. If anything, this only proves that you were in a geographic region. Plausible deniability? Also, this problem goes away completely if you leave your cell phone at home. An easy trick to adopt for the Joes looking to buy Bitcoins anonymously.
    - lurkinggrue 14y ago
      True, but my point is given a large data set we find surprising ways to trace it back to people. So at some point I would expect goverment/people to crack open the bitcoin data and stat mapping it to people and looking for trends. I don't think that is specifically a bad thing but you should conciser it before doing something foolish with bitcoins.
      - jmtame 14y ago
        I definitely agree that someone who buys Bitcoins needs to think about how identity is tied back to them, but so far it's not a convincing point that Joe is at a high degree of risk if he's cautious. Those points need to be debated specifically, and not from an abstract or high level. The cell phone example was the first I heard of that, and a really good example. But it's not going to break anonymity. It sounds way too hand-wavy to me to say things like "Well, Bitcoins.. It's a con.. the government will find Joe, somehow.. Be afraid!" So far, my point stands that you can remain completely anonymous while buying Bitcoins. The article started out with fear mongering, and so far, I'm unconvinced that it has any substance to it. To call it a "con" is sensationalism at best.
mrjava 14y ago
great post. I feel that history will judge history as a scam and nothing more.
clicks 14y ago
I wasn't sure who the author of the post was -- surprised to find out now: Karl Denninger is an American technology businessman, finance blogger, and political activist, sometimes referred to as a founding member of the Tea Party movement. http://en.wikipedia.org/wiki/Karl_Denninger http://en.wikipedia.org/wiki/Karl_Denninger
- tptacek 14y ago
  Denninger ran an ISP in Chicago in the mid-90s and is an infamous curmudgeon. He sold the ISP in the late '90s and, as I understand it, retired to Florida to curmudge professionally. I have no idea why his thoughts on Bitcoin would be worth spreading on HN. He has no particular authority regarding economics (he's not a trained economist so far as I know) an the reasoning in this post seems to be of the typical working- backwards- from- foregone- conclusion attempted- first- principles stuff you can get on any HN thread arguing about Bitcoin. I really dislike Bitcoin, but can think of much better devil's advocates than Denninger.
  - nwzpaperman 14y ago
    Well stated, he has zero authority on the subject of finance.
  - Irregardless 14y ago
    > I have no idea why his thoughts on Bitcoin would be worth spreading on HN. Ad hominem attacks are somehow better? One would hope the crowd on HN is mature enough not to be swayed by those... It's popular because he made valid, well-supported points. If you disagree with his points, why not attack those instead of Denninger himself?
    - tptacek 14y ago
      The ad hominem fallacy is the fallacious use of an argument concerning an opponent. The words "ad hominem" aren't a talisman exempting all people from judgements of credibility. So far as I can tell, all the points Denninger has made here are supported only by Denninger's bare assertions. It reads like a message board post. Here's an article critical of Bitcoin that does better than recasting opinions as facts: http://ftalphaville.ft.com/2013/04/03/1425292/the-problem-with-bitcoin/ http://ftalphaville.ft.com/2013/04/03/1425292/the-problem-wi...
mikecane 14y ago
>>>Since technological advancement tends to make it easier to produce "things" in real terms, a perfect currency reflects this and makes time preference inherently valuable. This in turn forces the producers of goods and services to innovate in order to attract your economic surplus from under the mattress and into their cash registers, since not spending your economic surplus is in fact to your advantage. That. As production costs lower prices, money should increase in value just by sitting in your damn wallet. Not lose value. EDIT at add: Blah blah oil shortage, oil price increases, prices increase downstream. But we've been ripping oil out via fracking and if you believe the PR, oil should be plummeting in price. Somehow, it's only in clear-cut cases like manufacturing that prices can actually decrease.
- kintamanimatt 14y ago
  That's essentially deflation and is generally regarded as a very bad thing. Nice write-up by Krugman: http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation-bad/ http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation...
  - jbooth 14y ago
    Shorter explanation of why deflation is bad: If your cash is increasing in value (because of deflation), then it's a smarter financial move to stuff cash under a mattress than to spend or invest it. This is why most economists think 1-5% inflation is about the sweet spot.
    - ghgr 14y ago
      Not necessarily if your investment generates Bitcoin (for example, it is wiser to invest in mining equipment rather than stuff BTC under the mattress)
    - VMG 14y ago
      Short rebuttal: a world in which people starve in deprivation on top of a cash-filled mattress is improbable.
MostAwesomeDude 14y ago
What a difficult-to-parse writing style. I can almost hear the HTML tags screaming, begging for release.
- mmavnn 14y ago
  I could hear the volume of my 'mental voice' rising as the various forms of emphasis started overlapping and leaving less and less text untouched, until it felt like I was reading the screaming denouncements of a deranged dictator. The content was actually quite interesting underneath.
grovulent 14y ago
An interesting analysis... but I'm so tired of punditry. Sick of a priori pontification and postulations. I prefer the hacker mentality which is to build it, release it and see if it works. There are a crap tonne of variables never controlled for in Denniger's philosophy.
- nathanb 14y ago
  By your logic we should also build bridges and tell people to drive over them and see if they collapse. There is a time and a place for analysis and trying to understand, a priori, the failure modes of a system. As the potential for loss increases, the importance of "pontification and postulations" (hopefully more of the latter than the former!) also increases.
  - grovulent 14y ago
    Okay - well if you would grant me the generosity of assuming a little common sense in my perspective - any reasonable engineer would perform all possible testing in the building phase of a project. The point remains - in the real world there be a zillion variables that your tests almost certainly won't account for. I agree that there is room for a priori pontification - at the hypothesis formation stage of theory building, but that's about it. Except folks like denniger aren't forming hypotheses that can be tested at all. He's just waxing lyrical - tensing his ideological bow.
drorweiss 14y ago
Very interesting post, but as I'm not going to be buying or selling pot for bitcoin, I'm not sure the concerns are relevant. Seriously, I imagine that the transition from currency made of actual gold that was worth its value to symbolic currency, especially notes, was a harder transition than switching from some abstract numbers in dollars to abstract numbers in bitcoin.
- imatworkyo 14y ago
  remember now - gold has no 'worth' Its only valuable because of its utility as currency, and its standardization as such
  - TylerE 14y ago
    That's not true at all. Aside from it's use in jewelry, gold is used in electronics and industrial chemistry. It actually has industrial uses, thus there is a certain floor on it's value.
    - Sambdala 14y ago
      However, that floor (due to industrial/etc uses) is probably in the neighborhood of $10-$20 per Oz, or completely decoupled from the actual price at any given time in written history.
  - Peaker 14y ago
    It has some 'worth' as it is useful for making nice jewelry and is a good conductor too.
drorweiss 14y ago
Very interesting post, but as I'm not going to be buying or selling pot for bitcoin, I'm not sure the concerns are relevant. Seriously, I imagine that the transition from currency made of actual gold that was worth its value to symbolic currency, especially notes, was a harder transition than switching from some abstract numbers in dollars to abstract numbers in bitcoin.
DiabloD3 14y ago
Whats with all of these anti-Bitcoin articles from people who keep cranking out strawman attacks?
deleted 14y ago
[deleted]
qixxiq 14y ago
While the rest of his post is fairly interesting, I am getting rather annoyed at the complaints of 'double-spend' being an actual problem with bitcoin. Yes, there is short period before you get confirmations (5-10 minutes), but there are also a lot of possible solutions to that as support for the currency develops. Notes are only trusted because of trust in their creator and the security features they put in place. If bitcoins ever take off in the larger population I foresee trustworthy banks that will hold your bitcoins for you. Transactions from them can immediately be trusted due to trust in the bank that is sending them.
- mikecane 14y ago
  >>>Transactions from them can immediately be trusted due to trust in the bank that is sending them. Well that's a bit hilarious to consider since the entire point of alternative currencies is to bypass that clot in the circulatory system.
rlpb 14y ago
I think there's a problem with his argument about the dealer and Joe. Joe will have taken steps to make sure that his identity is disconnected from the BTC with which he pays the dealer. This is the same as making sure that the dollar bills he uses can't be traced back to him either (except that with Bitcoin he'd need to take a little more care, like for example using an app that does it for him). The fact that there will be a permanent record that $100 was transacted is neither here nor there. Even if the dealer gets caught later, nobody will be able to link that to Joe. If the dealer confesses and implicates Joe, then that would be the same as the dealer being caught with the $100 in cash and implicating Joe. In both cases, Joe can just deny that he ever held the cash (whether in dollars or BTCs). I do take the author's point that arranging to make your money less traceable is illegal under money laundering laws in most jurisdictions. But using Bitcoin for illegal purposes is no different to using dollars for illegal purposes; it's illegal either way. Interestingly, since there's a record of all Bitcoin transactions, records of your own transactions that you keep yourself can easily be corroborated with the public record by the authorities. This can be done far more readily than with cash. If you want to keep your financial transactions above board, then perhaps Bitcoin is even better than cash for proving that you aren't laundering money.
- kevingadd 14y ago
  Is it possible to actually disconnect BTC from its source though? There will always be a transaction history. The best it seems you can do is obfuscate its source, by 'pooling' large quantities of BTC and then spreading them back out to new destinations - but if anything, that just seems to me like it would make ALL the resulting BTC suspect. It seems inevitable to me that if a government decided bitcoins were being used for illicit purposes, they would take all necessary steps to ensure that mechanisms for making them untraceable at scale become illegal. The currency doesn't actually seem like the problem here: $100 isn't much even if it's in bitcoins, so how you spend it and where you get it doesn't matter much in practice. The purchase is what matters, because if the purchase is illegal that's what's putting you at risk no matter the amount of money. Of course, once you start dealing in large amounts of currency - USD or BTC - that's when you start increasing risk because governments keep an eye out for large amounts of money being moved around. At that point, I think you'd have reason to be concerned about people simply tracking your large transactions towards their destination and using that to identify you. The upside of more robust record-keeping does seem like a potential upside, though, I agree.
maeon3 14y ago
He's making a big deal out of the fact that some evil human may concoct an evil plan and swindle an honest man out of his hard earned bitcoins. He's missing the entire point, bitcoin was designed to stop the federal reserve and US Mint from systematically diluting the value of our money through systematic inflation, (taking taxpayer dollars and giving it to AIG buddies for bailouts and million dollar bonuses) while bribing the media to trick the masses that inflation is somehow "good" for us. Yes, evil men exist, and they will swindle others with tricky transactions. The purpose of bitcoin is to stop the people who create the money from stealing most of the value of all wealth on Earth every 20 years or so through Quantitative easing, inflation, and "printing dollars and giving the money to your friends" which is running rampant in this country. He's ignoring one of the primary strengths of bitcoin, that if you want to acquire bitcoins, you will have to either A: deprive another human of them through specific and traceable theft/deception, or B: to provide reasonable goods and services in exchange them. It stops the "Government printing Money and giving it to buddies" inflation problem dead in its tracks. But who cares? It means 5 hours of human labor deposited into bit coin equals 5 hours of human labor back out 20 years from now. We don't have anything like that now. It is as revolutionary as the invention of agriculture. Sadly his conclusion is right. When this thing starts taking off (especially in cyprus where the governmental theft is rampant), anyone who uses it significantly is going to find their head on the chopping block, having been convicted of aiding and abetting the domestic terrorists. We must think clearly, putting ourselves in their shoes, on how they will crush BitCoin like a bug, and be prepared for the counter attacks.
- muraiki 14y ago
  Well, you can also acquire bitcoins through mining them, which substantially benefits the early adopters. 5 hours of human labor deposited into btc _is not_ equal to 5 hours in the future, because of btc's built-in inflation through increasing the difficulty of mining them. This is why Karl thinks that btc has the markings of a Ponzi scheme. Also, he points out that btc has no method of deflation aside from actually destroying the coins. The section about seigniorage explains his views here and while it's not worded the most clearly I think that it's a reasonable critique. If this were really a method that he felt was viable enough to escape the taxation of inflation through money printing, manipulation of the CPI, etc., then I'm sure Karl would be on board. He has been writing about these exact topics for more than five years now.
VMG 14y ago
tl;dr * government will kill it * not really anonymous somehow * verifications take too long
muraiki 14y ago
I used to read Karl Denninger's blog a lot, but I haven't been focused too much on economics lately. However, I'd like to quickly address a number of topics brought up in the comments, as there seems to be a misunderstanding or lack of understanding as to who he is and why he has any sort of authority to speak on this topic. Karl is not a trained economist in the sense having gone to school for it, but he is a very intelligent investor who profited heavily during the 2008 recession. He does not keep his knowledge to himself; in fact, he was warning of the collapse of Fannie Mae and the problems with Freddie Mac more than six months prior to the events of 2008. He has consistently and accurately predicted the results of various failures of US and international monetary policy, which you can read and critique from his year end reviews. Karl is an old school hacker, having run an ISP and developed a variety of software. It was the sale of his ISP that allowed him to become a full time investor. Karl organized the first "tea party" style protest of Washington through the organization Fed Up USA. He views inflation via money printing as taxation and has been working for years to have those who illegally profited from fraud in relation to the 2008 recession prosecuted. His writing style can be a real pain to read, especially with his liberal use of html tags... but it's well worth it.
- peejaybee 14y ago
  Off topic here, but MCS was a hell of an ISP. I regretted when Karl sold it.
- tptacek 14y ago
  Can you point to some evidence of the accuracy of his predictions? It would be interesting to see if they're of the "stopped clock" kind, or of the "shotgun blast" sort, or if he really is canny about predicting monetary events. There is another side, as there always is with everyone, to this assessment of Karl Denninger. I ran (tech operations for) a popular ISP in Chicago too (mine was EnterAct), and my experience with Denninger --- which I feel was relatively extensive --- did not leave me looking to him for advice about world affairs. As I wrote elsewhere in the thread, the points in this blog post that seem valid are also well-worn --- the lack of direct anonymity in Bitcoin, the fact that Bitcoin is deflationary and lacks a central bank, the theoretical possibility of double-spending --- and are also overwrought, written in jargon that makes the points seem fresher than they are. The rest is a jumble of idiosyncratic first-principles stuff, like the "entropy" of Bitcoin relative to gold doubloons.
vorvzakone 14y ago
You could've just said don't buy drugs with bitcoin. I'm bitter I didn't get in but I don't write blog posts about it
lolcraft 14y ago
> With a perfect currency time preference has no finger on the scale; that is, the currency neither appreciates or depreciates over time against a reasonably-constant basket of goods and services. Since technological advancement tends to make it easier to produce "things" in real terms, a perfect currency reflects this and makes time preference inherently valuable. facepalm If the "natural tendency" of capitalism is for prices to deflate, and you want time preference to not be defined by the currency, then exactly what you want is for the currency to be inflationary! Otherwise, you now have two compounding forces toward hoarding, or "late" time preference: capitalism, which drives future prices down, and the currency (Bitcoin, gold...) which also drives prices down -- since, when we say a currency is deflationary, like Bitcoin is, we mean it deflates goods' prices over time... Needless to say, that should fuck the economy up pretty badly, by your own admission. To be fair, it was an interesting argument, until he just freaked out and confused up for down. Or deflation for inflation, whatever. And this is supposed to be one of the founding fathers of the Tea Party, by the way? > This in turn forces the producers of goods and services to innovate in order to attract your economic surplus from under the mattress and into their cash registers, since not spending your economic surplus is in fact to your advantage. Yeah, this forces producers to work harder in order to get paid the same. That this means a production glut is left as an (easy!) exercise for the reader. Extra points if you develop your conclusions regarding debt and interest under this currency. To be fair, I completely agree with his comparison of Bitcoin to a pyramid scheme. It's funny how the dude has such a tenuous grasp over the most basic economics, that he gets it right by pure accident and for all the wrong reasons. > That means that if you were one of the early adopters you get paid through the difficulty of those who attempt to mine coins later! That is, your value increases because the later person's expenditure of energy increases rather than through your own expenditure of energy. If that sounds kind of like a pyramid scheme, it's because it is very similar to to how the "early adopters" in all pyramid schemes get a return -- your later and ever-increasing effort for each subsequent unit of return accrues far more to the early adopter than it does to you! You know what? This is exactly the definition of a deflationary currency. He just admitted BTC is a pyramidal scheme because it's deflationary! But, of course, he's a right-wing pundit, he can't admit that! What to do? No matter, some pseudo-cryptography, pseudo-physics bullshit (entropy, of all things!) saves the day... Now I'm just fucking screaming at the screen... Holy shit holy shit holy shit holy shit... I just can't believe it. The inevitable conclusion is, I must be just too fucking stupid to understand these elaborate libertarian doctrines. Yeah, that must be...
sokrates 14y ago
Literally the entire first half of the post can be read as "but it uses fancy techno stuff that can be constructed to violate some law." No real arguments against the currency there, just FUD about the wallet splitting (so I can't take 20$ out of the 40$ in my purse, right?) Concering the entropy argument, which makes logical sense to me, it remains to be seen how much of an impact coin loss makes. As long as the amount remains small enough, that makes the coins rarer and just makes them rise in value a bit. Of course, as soon as everyone loses their coins, we're screwed. Who knew? Sadly, I think the conclusion is pretty accurate: once Bitcoin rises above the grass, states will try to crush it with everything they've got. And they will probably succeed.
jrockway 14y ago
The real question is: does an indelible record of transactions actually make it difficult to perform illegal activity? I can see arguments either way, but this will ultimately the interesting question. On the surface, it seems like it would be easy to send coins and disbursement instructions to a big pool somewhere. Then someone watching the network sees a node that eats and emits coins, but doesn't make it obvious which source/destination were involved in one transaction. (Similarly, your bank sees a check to your credit card company each month, but doesn't know or care what exactly you bought on that credit card.) Even without a "dark pool", I don't think the block chain verification requires each transaction counterparty pair to be identified. Imagine you print out a bitcoin and give it to someone in person. This reduces the value of the coin, since you could have made multiple copies and the first copy wins when spent on the real network. But people performing illegal activities already pay a lot for the risk, so this would be nothing new. Anyway, I mostly stopped reading the linked article when I looked at the banner at the top of the page.
kruhft 14y ago
All of this talk of how Bitcoin sucks, it's fundamentally flawed and how some other technology would be so much better sounds a lot like programmers talking about PHP and how it sucks, it's fundamentally flawed and how some other technology would be so much better. Facebook and a lot of other sites have made a hell of a lot of money off of PHP. It works well enough, it's adopted and it gets the job done. Go be successful with your perfect system and then come back and tell everyone how much the other system sucks.
- staticfish 14y ago
  Not sure how this turned into PHP, but yes. It does indeed suck.
p6v53as 14y ago
So the problem with bitcoins is that it can be harder to evade taxes and buy illegal stuff? I don't know how it is in USA, but where I live it would be very useful feature of currency. However I remain unconvinced even of the arguments that it could be traced.
codeboost 14y ago
I see many such articles lately and all of them have the same argument: bitcoin doesn't fit well with the current economic theory and hence it's a NO. The fact is, Bitcoin doesn't and will not fit the theory. What it will eventually do is create a new theory, based on these new technological realities. In fact, I envision such tremendous changes in our society because of cryptocurrency in general that it's hard to even imagine what the consequence will eventually be. My concern is not that Bitcoin will not work, but that it will work so well that it will totally transform the world, which, given human nature, can lead to big disasters, like famines, wars and so on.
jellicle 14y ago
I was not expecting Tea-Party-Guy to have anything good to say, but his analysis of Bitcoin is both brutally honest and accurate. At some point in time - a point in time which is probably in the past - the government is going to lock a cryptographer and a forensic accountant in a room together and tell them to develop a tool to unroll bitcoin networks. They will (have) done so. The tool will, given a couple of known transactions, create a graph of every activity ever that is in any way related to those transactions. Each known transaction or account added in will fill in the graph further. A handy printout will correlate all the intersections between graph 1 and graph 2 for any two individuals the government wants to link together. "Says here on November 3rd you sent another $7,500 to the opium dealer from Hong Kong. What were you buying?" "On the advice of my lawyer, I refuse to answer." The first people the federal government decides to take down who have used bitcoin in their financial shenanigans are going to be facing 1000-count indictments and 500-year prison terms.
- jstalin 14y ago
  If you have a PC with a constant bitcoin address installed on it, yes. But if you're using a brain wallet with a livecd OS, for instance, it seems unlikely that it could be traced.
- psionski 14y ago
  Something like http://blockchain.info/tree/65591581 http://blockchain.info/tree/65591581 ?
  - jellicle 14y ago
    The point is to make it intelligible to the average district attorney, and to take arbitrary transactions and wallets and link them together into a web/timeline that, again, is intelligible to the criminal prosecution apparatus.
leovingi 14y ago
Couple of assumptions are being made here and I'm going to go through them point by point. ------- "There is now an indelible and permanent record of the transfer of funds and that record will never go away." The author is absolutely correct that there is now a permanent record of a transfer funds. But immediately the assumption is being made that such a record is bad, if you're trying to hide your financial activities. In reality, all you see is "Wallet A" sending bitcoins to "Wallet B". While you still need to pay real and traceable money for bitcoins, which can then be tied to your "Wallet A", all one needs to do, for example, is generate a couple of throw-away wallets, split the amount of bitcoins up, send them to each wallet, then use those wallets for the final transfer to "Wallet B". What happens then is that the pot dealer receives, let's say, 10BC, but such an amount has never directly left your wallet in a single transaction and you have no connection whatsoever to the pot dealer. Again, you might be presented with a chain of transfers and you might be asked why you sent 5BC to a random wallet that has only ever been used to forward that money to the pot dealer. But that, by itself, is not illegal. I can send money to whoever I wish right now and, unless I have specific knowledge of their future actions, what they do with the money has nothing to do with me. ------- " That liability never goes away as it was wilfully evaded and yet the ability to track the transaction never goes away either!" Personally, I think this is more about the ethics of tax evasion, rather than a problem with the currency itself. I do not like to blame objects for the actions of people, but the author clearly has a different point of view. ------- "If you wish to fill up your tank with gasoline, for example, few people are going to be willing to wait for 10 minutes, say much less an hour, before being permitted to pump the gas -- or drive off with it." Again, this is a completely valid statement, but the author immediately assumes that BC is the end-all global currency, thus tries to validate his disapproval of bitcoins based on an imaginary problem, that isn't even an actual problem with bitcoins. If bitcoins solve one or two problems, but don't solve a third, is that a valid dismissal of the currency as a whole? Can we not imagine a world where bitcoins are complementary to government-backed currencies? ------- "your value increases because the later person's expenditure of energy increases rather than through your own expenditure of energy." I admit I do not get this one. If I mined 50BC from the start, how do I profit if someone else now mines 25BC? Of course, if the value of BC goes up, as it is doing right now, we both profit, but that has nothing to do with the later person mining bitcoins. Rather it is a normal process where a lot more people are interested in buying bitcoins, so demand goes up along with the price. If no one wanted to use bitcoins, then both people would now be stuck with worthless bits. Also, I disagree with the premise that early adopters shouldn't be rewarded. If I start mining bitcoins right from the start, I carry a much bigger risk of wasting my investment (electricity usage, etc.) than the person that joins later on, once the currency has been established and it seems reasonable that it might be used by millions of people.
csomar 14y ago
I'd like to disagree on a few points #1 Instant This makes such a currency severely handicapped for general transaction use in an economy, and that in turn damages goods and service preference -- the ability to use it to exchange one good or service for another. This can be solved by services which provides such functionality and process the transaction later. This is certainly a limitation in Bitcoin but you are not going to process the transaction manually anyway. There will be a third-party that will handle this stuff. #2 Anonymity You can buy Bitcoins with paper dollars making you securely anonymous. You can even (probably) trade Bitcoins for some work you did anon. #3 Pyramid Scheme Early adopters in Bitcoins benefit. That's downright right. But at least you get to choose if you are an early adopter. You don't chose to take a loan. You'll probably have to apply and go through their process. You don't chose to be in the position of making "Quantitative Easing" or benefiting from it. #4 Bitcoin is destructible I'm also concerned with this, but some attention by the owners is required. If enough attention and development is awarded to security in Bitcoins, this will only happen few times to be noticed. #5 Taxes Let's say you "buy" Bitcoins (whether for cash or in exchange for a good or service you provide) at a time when they have a "value" of $5 each against the US dollar. You spend them when they have a "value" of $20 each. You have a capital gain of $15. I agree that's a problem, but it's manageable nevertheless. Companies are managing this already. People can manage this with the assistance of a third-party. You are making a profit, so everything is good :)
- lurkinggrue 14y ago
  > #4 Bitcoin is destructable We can probably expect a Trojan to infiltrate a exchange and destroy the wallets and backups at some point just for the lulz. Security is hard and I don't see expect of these exchanges to handle security right. Ok,I'm being cynical.
d23 14y ago
> Unfortunately Bitcoin, as I will explain in detail, also does a*-poor job of satisfying either of these requirements. A bit off-topic, but what curse-word is he using here?
- aclevernickname 14y ago
  Starts with a P, rhymes with "Chris".
myspace 14y ago
Glad to hear a voice of sanity in this Ponzi scheme for techies

101 points by anu_gupta 14y ago

FUD

Bitcoin transactions are permanent sure, but they have no identity tied to them, unless they were purchased with something that already had an identity associated (eg never buy Bitcoins with PayPal, because PayPal already knows who you are). If Joe wants to buy drugs, then he can walk into any bank and do a cash deposit to a BitInstant account, which gets dumped into MtGox and he can then move it around any way he wants, including online marketplaces. There's no identity that can be traced back to him except for the bank's video surveillance, and how long is that stored at a bank? Without the surveillance, there's no way to tie any transaction Joe does back to his identity. The wallet, the address, the marketplace (if done right using tumbling and encrypting all messages) all leave no trace to a transaction.

chewit 14y ago
How about whenever you try to take money out? How can you get money out without it coming to an account that is associated with you? Can't the coins be tracked from the illicit purchase to this point? I'm not clear on the process at all!
- hilko 14y ago
  A site such as bitcoin-24.com allows you to create an account with no personal identification. It also allows you to send cash money (converted from bitcoin, usually) to an address. And if you want to avoid the address issue, you can (currently) use one of the many 'exchanges' at localbitcoins.com and pick it up personally. Hell, if that's too dangerous you can probably get a minion to do it for you. If the government ever cracks down on this kind of stuff, for example by making it harder to be a local trader at localbitcoins.com, then I have no doubt that a small industry of 'illegal traders' will appear, or methods of laundering the money.
lurkinggrue 14y ago
It would not be hard. We have seen over and over again how anonymous data can suddenly be tied down. Example: http://www.wired.com/threatlevel/2013/03/anonymous-phone-location-data/ http://www.wired.com/threatlevel/2013/03/anonymous-phone-loc... Remember: Attacks only get better, not worse.
- jmtame 14y ago
  Wow, nice find. I hadn't thought about tracing the cell phone before, of all things. Practically, it seems like a stretch to try and look at GPS logs through a carrier and prove that someone was at a bank at a given time. It says the precision is down to 2 hours, so you can theoretically get to a bank, not make/receive any calls, and get back before that 2 hour window and nothing would ever be recorded by the cell towers. If anything, this only proves that you were in a geographic region. Plausible deniability? Also, this problem goes away completely if you leave your cell phone at home. An easy trick to adopt for the Joes looking to buy Bitcoins anonymously.
  - lurkinggrue 14y ago
    True, but my point is given a large data set we find surprising ways to trace it back to people. So at some point I would expect goverment/people to crack open the bitcoin data and stat mapping it to people and looking for trends. I don't think that is specifically a bad thing but you should conciser it before doing something foolish with bitcoins.
    - jmtame 14y ago
      I definitely agree that someone who buys Bitcoins needs to think about how identity is tied back to them, but so far it's not a convincing point that Joe is at a high degree of risk if he's cautious. Those points need to be debated specifically, and not from an abstract or high level. The cell phone example was the first I heard of that, and a really good example. But it's not going to break anonymity. It sounds way too hand-wavy to me to say things like "Well, Bitcoins.. It's a con.. the government will find Joe, somehow.. Be afraid!" So far, my point stands that you can remain completely anonymous while buying Bitcoins. The article started out with fear mongering, and so far, I'm unconvinced that it has any substance to it. To call it a "con" is sensationalism at best.

mrjava 14y ago

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

clicks 14y ago

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

tptacek 14y ago
Denninger ran an ISP in Chicago in the mid-90s and is an infamous curmudgeon. He sold the ISP in the late '90s and, as I understand it, retired to Florida to curmudge professionally. I have no idea why his thoughts on Bitcoin would be worth spreading on HN. He has no particular authority regarding economics (he's not a trained economist so far as I know) an the reasoning in this post seems to be of the typical working- backwards- from- foregone- conclusion attempted- first- principles stuff you can get on any HN thread arguing about Bitcoin. I really dislike Bitcoin, but can think of much better devil's advocates than Denninger.
- nwzpaperman 14y ago
  Well stated, he has zero authority on the subject of finance.
- Irregardless 14y ago
  > I have no idea why his thoughts on Bitcoin would be worth spreading on HN. Ad hominem attacks are somehow better? One would hope the crowd on HN is mature enough not to be swayed by those... It's popular because he made valid, well-supported points. If you disagree with his points, why not attack those instead of Denninger himself?
  - tptacek 14y ago
    The ad hominem fallacy is the fallacious use of an argument concerning an opponent. The words "ad hominem" aren't a talisman exempting all people from judgements of credibility. So far as I can tell, all the points Denninger has made here are supported only by Denninger's bare assertions. It reads like a message board post. Here's an article critical of Bitcoin that does better than recasting opinions as facts: http://ftalphaville.ft.com/2013/04/03/1425292/the-problem-with-bitcoin/ http://ftalphaville.ft.com/2013/04/03/1425292/the-problem-wi...

mikecane 14y ago

>>>Since technological advancement tends to make it easier to produce "things" in real terms, a perfect currency reflects this and makes time preference inherently valuable. This in turn forces the producers of goods and services to innovate in order to attract your economic surplus from under the mattress and into their cash registers, since not spending your economic surplus is in fact to your advantage. That. As production costs lower prices, money should increase in value just by sitting in your damn wallet. Not lose value. EDIT at add: Blah blah oil shortage, oil price increases, prices increase downstream. But we've been ripping oil out via fracking and if you believe the PR, oil should be plummeting in price. Somehow, it's only in clear-cut cases like manufacturing that prices can actually decrease.

kintamanimatt 14y ago
That's essentially deflation and is generally regarded as a very bad thing. Nice write-up by Krugman: http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation-bad/ http://krugman.blogs.nytimes.com/2010/08/02/why-is-deflation...
- jbooth 14y ago
  Shorter explanation of why deflation is bad: If your cash is increasing in value (because of deflation), then it's a smarter financial move to stuff cash under a mattress than to spend or invest it. This is why most economists think 1-5% inflation is about the sweet spot.
  - ghgr 14y ago
    Not necessarily if your investment generates Bitcoin (for example, it is wiser to invest in mining equipment rather than stuff BTC under the mattress)
  - VMG 14y ago
    Short rebuttal: a world in which people starve in deprivation on top of a cash-filled mattress is improbable.

MostAwesomeDude 14y ago

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

mmavnn 14y ago
I could hear the volume of my 'mental voice' rising as the various forms of emphasis started overlapping and leaving less and less text untouched, until it felt like I was reading the screaming denouncements of a deranged dictator. The content was actually quite interesting underneath.

grovulent 14y ago

An interesting analysis... but I'm so tired of punditry. Sick of a priori pontification and postulations. I prefer the hacker mentality which is to build it, release it and see if it works. There are a crap tonne of variables never controlled for in Denniger's philosophy.

nathanb 14y ago
By your logic we should also build bridges and tell people to drive over them and see if they collapse. There is a time and a place for analysis and trying to understand, a priori, the failure modes of a system. As the potential for loss increases, the importance of "pontification and postulations" (hopefully more of the latter than the former!) also increases.
- grovulent 14y ago
  Okay - well if you would grant me the generosity of assuming a little common sense in my perspective - any reasonable engineer would perform all possible testing in the building phase of a project. The point remains - in the real world there be a zillion variables that your tests almost certainly won't account for. I agree that there is room for a priori pontification - at the hypothesis formation stage of theory building, but that's about it. Except folks like denniger aren't forming hypotheses that can be tested at all. He's just waxing lyrical - tensing his ideological bow.

drorweiss 14y ago

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

imatworkyo 14y ago
remember now - gold has no 'worth' Its only valuable because of its utility as currency, and its standardization as such
- TylerE 14y ago
  That's not true at all. Aside from it's use in jewelry, gold is used in electronics and industrial chemistry. It actually has industrial uses, thus there is a certain floor on it's value.
  - Sambdala 14y ago
    However, that floor (due to industrial/etc uses) is probably in the neighborhood of $10-$20 per Oz, or completely decoupled from the actual price at any given time in written history.
- Peaker 14y ago
  It has some 'worth' as it is useful for making nice jewelry and is a good conductor too.

drorweiss 14y ago

DiabloD3 14y ago

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

deleted 14y ago

[deleted]

qixxiq 14y ago

While the rest of his post is fairly interesting, I am getting rather annoyed at the complaints of 'double-spend' being an actual problem with bitcoin. Yes, there is short period before you get confirmations (5-10 minutes), but there are also a lot of possible solutions to that as support for the currency develops. Notes are only trusted because of trust in their creator and the security features they put in place. If bitcoins ever take off in the larger population I foresee trustworthy banks that will hold your bitcoins for you. Transactions from them can immediately be trusted due to trust in the bank that is sending them.

mikecane 14y ago
>>>Transactions from them can immediately be trusted due to trust in the bank that is sending them. Well that's a bit hilarious to consider since the entire point of alternative currencies is to bypass that clot in the circulatory system.

rlpb 14y ago

I think there's a problem with his argument about the dealer and Joe. Joe will have taken steps to make sure that his identity is disconnected from the BTC with which he pays the dealer. This is the same as making sure that the dollar bills he uses can't be traced back to him either (except that with Bitcoin he'd need to take a little more care, like for example using an app that does it for him). The fact that there will be a permanent record that $100 was transacted is neither here nor there. Even if the dealer gets caught later, nobody will be able to link that to Joe. If the dealer confesses and implicates Joe, then that would be the same as the dealer being caught with the $100 in cash and implicating Joe. In both cases, Joe can just deny that he ever held the cash (whether in dollars or BTCs). I do take the author's point that arranging to make your money less traceable is illegal under money laundering laws in most jurisdictions. But using Bitcoin for illegal purposes is no different to using dollars for illegal purposes; it's illegal either way. Interestingly, since there's a record of all Bitcoin transactions, records of your own transactions that you keep yourself can easily be corroborated with the public record by the authorities. This can be done far more readily than with cash. If you want to keep your financial transactions above board, then perhaps Bitcoin is even better than cash for proving that you aren't laundering money.

kevingadd 14y ago
Is it possible to actually disconnect BTC from its source though? There will always be a transaction history. The best it seems you can do is obfuscate its source, by 'pooling' large quantities of BTC and then spreading them back out to new destinations - but if anything, that just seems to me like it would make ALL the resulting BTC suspect. It seems inevitable to me that if a government decided bitcoins were being used for illicit purposes, they would take all necessary steps to ensure that mechanisms for making them untraceable at scale become illegal. The currency doesn't actually seem like the problem here: $100 isn't much even if it's in bitcoins, so how you spend it and where you get it doesn't matter much in practice. The purchase is what matters, because if the purchase is illegal that's what's putting you at risk no matter the amount of money. Of course, once you start dealing in large amounts of currency - USD or BTC - that's when you start increasing risk because governments keep an eye out for large amounts of money being moved around. At that point, I think you'd have reason to be concerned about people simply tracking your large transactions towards their destination and using that to identify you. The upside of more robust record-keeping does seem like a potential upside, though, I agree.

maeon3 14y ago

He's making a big deal out of the fact that some evil human may concoct an evil plan and swindle an honest man out of his hard earned bitcoins. He's missing the entire point, bitcoin was designed to stop the federal reserve and US Mint from systematically diluting the value of our money through systematic inflation, (taking taxpayer dollars and giving it to AIG buddies for bailouts and million dollar bonuses) while bribing the media to trick the masses that inflation is somehow "good" for us. Yes, evil men exist, and they will swindle others with tricky transactions. The purpose of bitcoin is to stop the people who create the money from stealing most of the value of all wealth on Earth every 20 years or so through Quantitative easing, inflation, and "printing dollars and giving the money to your friends" which is running rampant in this country. He's ignoring one of the primary strengths of bitcoin, that if you want to acquire bitcoins, you will have to either A: deprive another human of them through specific and traceable theft/deception, or B: to provide reasonable goods and services in exchange them. It stops the "Government printing Money and giving it to buddies" inflation problem dead in its tracks. But who cares? It means 5 hours of human labor deposited into bit coin equals 5 hours of human labor back out 20 years from now. We don't have anything like that now. It is as revolutionary as the invention of agriculture. Sadly his conclusion is right. When this thing starts taking off (especially in cyprus where the governmental theft is rampant), anyone who uses it significantly is going to find their head on the chopping block, having been convicted of aiding and abetting the domestic terrorists. We must think clearly, putting ourselves in their shoes, on how they will crush BitCoin like a bug, and be prepared for the counter attacks.

muraiki 14y ago
Well, you can also acquire bitcoins through mining them, which substantially benefits the early adopters. 5 hours of human labor deposited into btc _is not_ equal to 5 hours in the future, because of btc's built-in inflation through increasing the difficulty of mining them. This is why Karl thinks that btc has the markings of a Ponzi scheme. Also, he points out that btc has no method of deflation aside from actually destroying the coins. The section about seigniorage explains his views here and while it's not worded the most clearly I think that it's a reasonable critique. If this were really a method that he felt was viable enough to escape the taxation of inflation through money printing, manipulation of the CPI, etc., then I'm sure Karl would be on board. He has been writing about these exact topics for more than five years now.

VMG 14y ago

tl;dr * government will kill it * not really anonymous somehow * verifications take too long

muraiki 14y ago

I used to read Karl Denninger's blog a lot, but I haven't been focused too much on economics lately. However, I'd like to quickly address a number of topics brought up in the comments, as there seems to be a misunderstanding or lack of understanding as to who he is and why he has any sort of authority to speak on this topic. Karl is not a trained economist in the sense having gone to school for it, but he is a very intelligent investor who profited heavily during the 2008 recession. He does not keep his knowledge to himself; in fact, he was warning of the collapse of Fannie Mae and the problems with Freddie Mac more than six months prior to the events of 2008. He has consistently and accurately predicted the results of various failures of US and international monetary policy, which you can read and critique from his year end reviews. Karl is an old school hacker, having run an ISP and developed a variety of software. It was the sale of his ISP that allowed him to become a full time investor. Karl organized the first "tea party" style protest of Washington through the organization Fed Up USA. He views inflation via money printing as taxation and has been working for years to have those who illegally profited from fraud in relation to the 2008 recession prosecuted. His writing style can be a real pain to read, especially with his liberal use of html tags... but it's well worth it.

peejaybee 14y ago
Off topic here, but MCS was a hell of an ISP. I regretted when Karl sold it.
tptacek 14y ago
Can you point to some evidence of the accuracy of his predictions? It would be interesting to see if they're of the "stopped clock" kind, or of the "shotgun blast" sort, or if he really is canny about predicting monetary events. There is another side, as there always is with everyone, to this assessment of Karl Denninger. I ran (tech operations for) a popular ISP in Chicago too (mine was EnterAct), and my experience with Denninger --- which I feel was relatively extensive --- did not leave me looking to him for advice about world affairs. As I wrote elsewhere in the thread, the points in this blog post that seem valid are also well-worn --- the lack of direct anonymity in Bitcoin, the fact that Bitcoin is deflationary and lacks a central bank, the theoretical possibility of double-spending --- and are also overwrought, written in jargon that makes the points seem fresher than they are. The rest is a jumble of idiosyncratic first-principles stuff, like the "entropy" of Bitcoin relative to gold doubloons.

vorvzakone 14y ago

You could've just said don't buy drugs with bitcoin. I'm bitter I didn't get in but I don't write blog posts about it

lolcraft 14y ago

> With a perfect currency time preference has no finger on the scale; that is, the currency neither appreciates or depreciates over time against a reasonably-constant basket of goods and services. Since technological advancement tends to make it easier to produce "things" in real terms, a perfect currency reflects this and makes time preference inherently valuable. facepalm If the "natural tendency" of capitalism is for prices to deflate, and you want time preference to not be defined by the currency, then exactly what you want is for the currency to be inflationary! Otherwise, you now have two compounding forces toward hoarding, or "late" time preference: capitalism, which drives future prices down, and the currency (Bitcoin, gold...) which also drives prices down -- since, when we say a currency is deflationary, like Bitcoin is, we mean it deflates goods' prices over time... Needless to say, that should fuck the economy up pretty badly, by your own admission. To be fair, it was an interesting argument, until he just freaked out and confused up for down. Or deflation for inflation, whatever. And this is supposed to be one of the founding fathers of the Tea Party, by the way? > This in turn forces the producers of goods and services to innovate in order to attract your economic surplus from under the mattress and into their cash registers, since not spending your economic surplus is in fact to your advantage. Yeah, this forces producers to work harder in order to get paid the same. That this means a production glut is left as an (easy!) exercise for the reader. Extra points if you develop your conclusions regarding debt and interest under this currency. To be fair, I completely agree with his comparison of Bitcoin to a pyramid scheme. It's funny how the dude has such a tenuous grasp over the most basic economics, that he gets it right by pure accident and for all the wrong reasons. > That means that if you were one of the early adopters you get paid through the difficulty of those who attempt to mine coins later! That is, your value increases because the later person's expenditure of energy increases rather than through your own expenditure of energy. If that sounds kind of like a pyramid scheme, it's because it is very similar to to how the "early adopters" in all pyramid schemes get a return -- your later and ever-increasing effort for each subsequent unit of return accrues far more to the early adopter than it does to you! You know what? This is exactly the definition of a deflationary currency. He just admitted BTC is a pyramidal scheme because it's deflationary! But, of course, he's a right-wing pundit, he can't admit that! What to do? No matter, some pseudo-cryptography, pseudo-physics bullshit (entropy, of all things!) saves the day... Now I'm just fucking screaming at the screen... Holy shit holy shit holy shit holy shit... I just can't believe it. The inevitable conclusion is, I must be just too fucking stupid to understand these elaborate libertarian doctrines. Yeah, that must be...

sokrates 14y ago

Literally the entire first half of the post can be read as "but it uses fancy techno stuff that can be constructed to violate some law." No real arguments against the currency there, just FUD about the wallet splitting (so I can't take 20$ out of the 40$ in my purse, right?) Concering the entropy argument, which makes logical sense to me, it remains to be seen how much of an impact coin loss makes. As long as the amount remains small enough, that makes the coins rarer and just makes them rise in value a bit. Of course, as soon as everyone loses their coins, we're screwed. Who knew? Sadly, I think the conclusion is pretty accurate: once Bitcoin rises above the grass, states will try to crush it with everything they've got. And they will probably succeed.

jrockway 14y ago

The real question is: does an indelible record of transactions actually make it difficult to perform illegal activity? I can see arguments either way, but this will ultimately the interesting question. On the surface, it seems like it would be easy to send coins and disbursement instructions to a big pool somewhere. Then someone watching the network sees a node that eats and emits coins, but doesn't make it obvious which source/destination were involved in one transaction. (Similarly, your bank sees a check to your credit card company each month, but doesn't know or care what exactly you bought on that credit card.) Even without a "dark pool", I don't think the block chain verification requires each transaction counterparty pair to be identified. Imagine you print out a bitcoin and give it to someone in person. This reduces the value of the coin, since you could have made multiple copies and the first copy wins when spent on the real network. But people performing illegal activities already pay a lot for the risk, so this would be nothing new. Anyway, I mostly stopped reading the linked article when I looked at the banner at the top of the page.

kruhft 14y ago

All of this talk of how Bitcoin sucks, it's fundamentally flawed and how some other technology would be so much better sounds a lot like programmers talking about PHP and how it sucks, it's fundamentally flawed and how some other technology would be so much better. Facebook and a lot of other sites have made a hell of a lot of money off of PHP. It works well enough, it's adopted and it gets the job done. Go be successful with your perfect system and then come back and tell everyone how much the other system sucks.

staticfish 14y ago
Not sure how this turned into PHP, but yes. It does indeed suck.

p6v53as 14y ago

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

codeboost 14y ago

I see many such articles lately and all of them have the same argument: bitcoin doesn't fit well with the current economic theory and hence it's a NO. The fact is, Bitcoin doesn't and will not fit the theory. What it will eventually do is create a new theory, based on these new technological realities. In fact, I envision such tremendous changes in our society because of cryptocurrency in general that it's hard to even imagine what the consequence will eventually be. My concern is not that Bitcoin will not work, but that it will work so well that it will totally transform the world, which, given human nature, can lead to big disasters, like famines, wars and so on.

jellicle 14y ago

I was not expecting Tea-Party-Guy to have anything good to say, but his analysis of Bitcoin is both brutally honest and accurate. At some point in time - a point in time which is probably in the past - the government is going to lock a cryptographer and a forensic accountant in a room together and tell them to develop a tool to unroll bitcoin networks. They will (have) done so. The tool will, given a couple of known transactions, create a graph of every activity ever that is in any way related to those transactions. Each known transaction or account added in will fill in the graph further. A handy printout will correlate all the intersections between graph 1 and graph 2 for any two individuals the government wants to link together. "Says here on November 3rd you sent another $7,500 to the opium dealer from Hong Kong. What were you buying?" "On the advice of my lawyer, I refuse to answer." The first people the federal government decides to take down who have used bitcoin in their financial shenanigans are going to be facing 1000-count indictments and 500-year prison terms.

jstalin 14y ago
If you have a PC with a constant bitcoin address installed on it, yes. But if you're using a brain wallet with a livecd OS, for instance, it seems unlikely that it could be traced.
psionski 14y ago
Something like http://blockchain.info/tree/65591581 http://blockchain.info/tree/65591581 ?
- jellicle 14y ago
  The point is to make it intelligible to the average district attorney, and to take arbitrary transactions and wallets and link them together into a web/timeline that, again, is intelligible to the criminal prosecution apparatus.

leovingi 14y ago

Couple of assumptions are being made here and I'm going to go through them point by point. ------- "There is now an indelible and permanent record of the transfer of funds and that record will never go away." The author is absolutely correct that there is now a permanent record of a transfer funds. But immediately the assumption is being made that such a record is bad, if you're trying to hide your financial activities. In reality, all you see is "Wallet A" sending bitcoins to "Wallet B". While you still need to pay real and traceable money for bitcoins, which can then be tied to your "Wallet A", all one needs to do, for example, is generate a couple of throw-away wallets, split the amount of bitcoins up, send them to each wallet, then use those wallets for the final transfer to "Wallet B". What happens then is that the pot dealer receives, let's say, 10BC, but such an amount has never directly left your wallet in a single transaction and you have no connection whatsoever to the pot dealer. Again, you might be presented with a chain of transfers and you might be asked why you sent 5BC to a random wallet that has only ever been used to forward that money to the pot dealer. But that, by itself, is not illegal. I can send money to whoever I wish right now and, unless I have specific knowledge of their future actions, what they do with the money has nothing to do with me. ------- " That liability never goes away as it was wilfully evaded and yet the ability to track the transaction never goes away either!" Personally, I think this is more about the ethics of tax evasion, rather than a problem with the currency itself. I do not like to blame objects for the actions of people, but the author clearly has a different point of view. ------- "If you wish to fill up your tank with gasoline, for example, few people are going to be willing to wait for 10 minutes, say much less an hour, before being permitted to pump the gas -- or drive off with it." Again, this is a completely valid statement, but the author immediately assumes that BC is the end-all global currency, thus tries to validate his disapproval of bitcoins based on an imaginary problem, that isn't even an actual problem with bitcoins. If bitcoins solve one or two problems, but don't solve a third, is that a valid dismissal of the currency as a whole? Can we not imagine a world where bitcoins are complementary to government-backed currencies? ------- "your value increases because the later person's expenditure of energy increases rather than through your own expenditure of energy." I admit I do not get this one. If I mined 50BC from the start, how do I profit if someone else now mines 25BC? Of course, if the value of BC goes up, as it is doing right now, we both profit, but that has nothing to do with the later person mining bitcoins. Rather it is a normal process where a lot more people are interested in buying bitcoins, so demand goes up along with the price. If no one wanted to use bitcoins, then both people would now be stuck with worthless bits. Also, I disagree with the premise that early adopters shouldn't be rewarded. If I start mining bitcoins right from the start, I carry a much bigger risk of wasting my investment (electricity usage, etc.) than the person that joins later on, once the currency has been established and it seems reasonable that it might be used by millions of people.

csomar 14y ago

I'd like to disagree on a few points #1 Instant This makes such a currency severely handicapped for general transaction use in an economy, and that in turn damages goods and service preference -- the ability to use it to exchange one good or service for another. This can be solved by services which provides such functionality and process the transaction later. This is certainly a limitation in Bitcoin but you are not going to process the transaction manually anyway. There will be a third-party that will handle this stuff. #2 Anonymity You can buy Bitcoins with paper dollars making you securely anonymous. You can even (probably) trade Bitcoins for some work you did anon. #3 Pyramid Scheme Early adopters in Bitcoins benefit. That's downright right. But at least you get to choose if you are an early adopter. You don't chose to take a loan. You'll probably have to apply and go through their process. You don't chose to be in the position of making "Quantitative Easing" or benefiting from it. #4 Bitcoin is destructible I'm also concerned with this, but some attention by the owners is required. If enough attention and development is awarded to security in Bitcoins, this will only happen few times to be noticed. #5 Taxes Let's say you "buy" Bitcoins (whether for cash or in exchange for a good or service you provide) at a time when they have a "value" of $5 each against the US dollar. You spend them when they have a "value" of $20 each. You have a capital gain of $15. I agree that's a problem, but it's manageable nevertheless. Companies are managing this already. People can manage this with the assistance of a third-party. You are making a profit, so everything is good :)

lurkinggrue 14y ago
> #4 Bitcoin is destructable We can probably expect a Trojan to infiltrate a exchange and destroy the wallets and backups at some point just for the lulz. Security is hard and I don't see expect of these exchanges to handle security right. Ok,I'm being cynical.

d23 14y ago

> Unfortunately Bitcoin, as I will explain in detail, also does a*-poor job of satisfying either of these requirements. A bit off-topic, but what curse-word is he using here?

aclevernickname 14y ago
Starts with a P, rhymes with "Chris".

myspace 14y ago

Glad to hear a voice of sanity in this Ponzi scheme for techies