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> When you transfer bitcoins to someone else, it’s as if you handed over a paper bag filled with $100 bills in a dark alley. This analogy is so wildy off the m

> When you transfer bitcoins to someone else, it’s as if you handed over a paper bag filled with $100 bills in a dark alley. This analogy is so wildy off the mark. In fact, an opposite scenario is more apt; a transfer of bitcoins is like handing someone a bag filled with cash, and then announcing it to everyone else in the world so that we can all agree on who has possesion of what. Only now you have a robot or other faceless surrogate perform the transaction for you, and (ideally) nobody knows which surrogates, or addresses, map to which people. The fact that Krugman's analogy botches the primary mechanism that makes crypto-currency work is disappointing. Edit: wording.

d0m 14y ago
I really haven't had much time to learn on bitcoins, so sorry my dumb question.. but when people are buying illegal drugs by using bitcoins, are they really "Announcing it to everyone else?". I believe, maybe in theory, that there's a clear trace of the transactions, but it gets way more easier to hide both side, no? For instance, we know that XYZ shared 1k$ with ABC.. good luck finding to find out who's that XYZ.
- shmageggy 14y ago
  Yes, that's exactly it. The shared, public, distributed block chain records every transaction that has ever taken place [1], so everyone knows and agrees on the amounts that are associated with each address. As long as nobody knows what addresses you use, it's anonymous with respect to a real-world identity. [1] https://en.bitcoin.it/wiki/Block_chain https://en.bitcoin.it/wiki/Block_chain
- d0m 14y ago
  By the way, I'd love to learn more and start using bitcoins.. transferring money with paypal or by, shrug writing paper cheques, feels so much deprecated. As an anecdote.. I'm using two different banks (One for work, one personal) but I can't share money between both accounts! Even if they both have online accounts.. I need to write the transaction on papers and go to the local bank to trade it. Thankfully I practically never do it.. or if I do it it's because it's big enough amounts that I'm happy to do it, but still..
bitcartel 14y ago
> "Let’s focus on the two huge misconceptions — one practical, one philosophical — that underlie both goldbugism and bitbugism. The practical misconception here — and it’s a big one — is the notion that we live in an era of wildly irresponsible money printing, with runaway inflation just around the corner. It’s true that the Federal Reserve and other central banks have greatly expanded their balance sheets — but they’ve done that explicitly as a temporary measure in response to economic crisis." If Krugman can't even get the basics of Bitcoin right, I'm certainly not going to buy into his view that the ongoing printing/digitising of funny money - $85 billion/month (US) and $76 billion/month (Japan) - is nothing to worry about. When trillions of dollars have effectively appeared out of thin air, the question needs to be addressed, is this responsible monetary policy or is this Mugabenomics?!
- venomsnake 14y ago
  If a neurosurgeon can't get hip replacement surgery right I would definitely not let him operate on my brain. Krugman specialty is macro and liquidity traps. Bitcoins are way out of his comfort zone.
  - beagle3 14y ago
    He's not fairing so good in macro either in this piece, as https://news.ycombinator.com/item?id=5549839 https://news.ycombinator.com/item?id=5549839 points out. (And if you read e.g. denninger's criticism of his columns, you'd see that this column is not a fluke: He often cherry picks evidence that fits his narrative, and ignores evidence and common sense when it doesn't)
  - bitcartel 14y ago
    If Bitcoin is outside of his comfort zone then he should do some research first! Seriously, how long would it have taken him to read up on Bitcoin and learn about the publicly distributed transaction ledger? > "Unlike credit card transactions, which leave a digital trail, bitcoin transactions are designed to be anonymous and untraceable. When you transfer bitcoins to someone else, it’s as if you handed over a paper bag filled with $100 bills in a dark alley."
fusiongyro 14y ago
You're missing the point of an analogy, which is to compare something complex or less understood to something simpler and more known. The idea isn't to correctly capture every detail, it's to highlight some relevant aspect. Krugman is acting as an essayist here, not a technical commentator. His analogy perfectly captures one of the central motivators of Bitcoin: privacy. These added details may increase the resolution, but they certainly aren't relevant to his argument, and neither is his argument unseated simply by adding them back in.
- tantalor 14y ago
  I fail to see how bitcoin transactions are more or less private than those in dollars. It does seem a lot easier to make private transactions with bitcoins. But anybody sufficiently motivated can achieve an arbitrary level of privacy with either, right?
  - anologwintermut 14y ago
    But not easily online and certainly not without tursting a third party. Bitcoin is not anonymous, its pseudonymous . It is,however, more anonymous than most online payment systems and unlike all but 1 or 2 academic proposals that offer real anonymity, it does't require you to trust someone not to run off with your money.
EGreg 14y ago
I've spent some time reading about bitcoin. It's not widely publicized that it's a distributed transaction ledger that uses proof of work to distribute trust in a mutual distrustful network. But even if it was ... when I pay you in bitcoins, it's not too far from the situation in his analogy! Sure, the ledger is updated, but no one knows who I am and who you are, so we may as well have been in a dark alley. The analogy breaks down only in that the dollars can be counterfeited or printed by governments, whereas bitcoins cannot (at least, it's not feasible to do so). But as far as anonymously exchanging money without recourse, it's actually a pretty apt analogy. It's a bit like off-the-record messaging. You can see that a transaction has taken place, you can even see how much money has been transferred, but you don't know who the parties were. (That last part is not strictly true yet.)

d0m 14y ago

I really haven't had much time to learn on bitcoins, so sorry my dumb question.. but when people are buying illegal drugs by using bitcoins, are they really "Announcing it to everyone else?". I believe, maybe in theory, that there's a clear trace of the transactions, but it gets way more easier to hide both side, no? For instance, we know that XYZ shared 1k$ with ABC.. good luck finding to find out who's that XYZ.

shmageggy 14y ago
Yes, that's exactly it. The shared, public, distributed block chain records every transaction that has ever taken place [1], so everyone knows and agrees on the amounts that are associated with each address. As long as nobody knows what addresses you use, it's anonymous with respect to a real-world identity. [1] https://en.bitcoin.it/wiki/Block_chain https://en.bitcoin.it/wiki/Block_chain
d0m 14y ago
By the way, I'd love to learn more and start using bitcoins.. transferring money with paypal or by, shrug writing paper cheques, feels so much deprecated. As an anecdote.. I'm using two different banks (One for work, one personal) but I can't share money between both accounts! Even if they both have online accounts.. I need to write the transaction on papers and go to the local bank to trade it. Thankfully I practically never do it.. or if I do it it's because it's big enough amounts that I'm happy to do it, but still..

bitcartel 14y ago

> "Let’s focus on the two huge misconceptions — one practical, one philosophical — that underlie both goldbugism and bitbugism. The practical misconception here — and it’s a big one — is the notion that we live in an era of wildly irresponsible money printing, with runaway inflation just around the corner. It’s true that the Federal Reserve and other central banks have greatly expanded their balance sheets — but they’ve done that explicitly as a temporary measure in response to economic crisis." If Krugman can't even get the basics of Bitcoin right, I'm certainly not going to buy into his view that the ongoing printing/digitising of funny money - $85 billion/month (US) and $76 billion/month (Japan) - is nothing to worry about. When trillions of dollars have effectively appeared out of thin air, the question needs to be addressed, is this responsible monetary policy or is this Mugabenomics?!

venomsnake 14y ago
If a neurosurgeon can't get hip replacement surgery right I would definitely not let him operate on my brain. Krugman specialty is macro and liquidity traps. Bitcoins are way out of his comfort zone.
- beagle3 14y ago
  He's not fairing so good in macro either in this piece, as https://news.ycombinator.com/item?id=5549839 https://news.ycombinator.com/item?id=5549839 points out. (And if you read e.g. denninger's criticism of his columns, you'd see that this column is not a fluke: He often cherry picks evidence that fits his narrative, and ignores evidence and common sense when it doesn't)
- bitcartel 14y ago
  If Bitcoin is outside of his comfort zone then he should do some research first! Seriously, how long would it have taken him to read up on Bitcoin and learn about the publicly distributed transaction ledger? > "Unlike credit card transactions, which leave a digital trail, bitcoin transactions are designed to be anonymous and untraceable. When you transfer bitcoins to someone else, it’s as if you handed over a paper bag filled with $100 bills in a dark alley."

fusiongyro 14y ago

You're missing the point of an analogy, which is to compare something complex or less understood to something simpler and more known. The idea isn't to correctly capture every detail, it's to highlight some relevant aspect. Krugman is acting as an essayist here, not a technical commentator. His analogy perfectly captures one of the central motivators of Bitcoin: privacy. These added details may increase the resolution, but they certainly aren't relevant to his argument, and neither is his argument unseated simply by adding them back in.

tantalor 14y ago
I fail to see how bitcoin transactions are more or less private than those in dollars. It does seem a lot easier to make private transactions with bitcoins. But anybody sufficiently motivated can achieve an arbitrary level of privacy with either, right?
- anologwintermut 14y ago
  But not easily online and certainly not without tursting a third party. Bitcoin is not anonymous, its pseudonymous . It is,however, more anonymous than most online payment systems and unlike all but 1 or 2 academic proposals that offer real anonymity, it does't require you to trust someone not to run off with your money.

EGreg 14y ago

I've spent some time reading about bitcoin. It's not widely publicized that it's a distributed transaction ledger that uses proof of work to distribute trust in a mutual distrustful network. But even if it was ... when I pay you in bitcoins, it's not too far from the situation in his analogy! Sure, the ledger is updated, but no one knows who I am and who you are, so we may as well have been in a dark alley. The analogy breaks down only in that the dollars can be counterfeited or printed by governments, whereas bitcoins cannot (at least, it's not feasible to do so). But as far as anonymously exchanging money without recourse, it's actually a pretty apt analogy. It's a bit like off-the-record messaging. You can see that a transaction has taken place, you can even see how much money has been transferred, but you don't know who the parties were. (That last part is not strictly true yet.)