4 ms·

Bitcoin will prosper until governments or banks decide to crush it

35 points by iProject 13y ago

nullc 13y ago
I'm trying to think of some <Foo> that doesn't work in the pattern of "<Foo> will prosper until governments or banks decide to crush it". Excepting the trivial cases of things that won't prosper regardless, I'm not coming up with anything. :) Some of the assumptions in the article seem pretty weak to me: E.g. "Anonymity threatens control" uh, cash is a lot more anonymous than Bitcoin. The structure of cash's anonymity limitations are somewhat different than Bitcoin's but it's hard to argue that Bitcoin is too different on that point. ... and it's not just cash, any other valuable commodity is fairly anonymous, and easily argued as more so than Bitcoin— yet, as far as I am aware, there is no great effort afoot to outlaw coal.
- Retric 13y ago
  It's effectively illegal to transport large amounts of cash in the US. As in cops will confiscate it and you have no recourse unless the "preponderance of the evedence" suggests it has no link to any crime.
  - noarchy 13y ago
    Governments have already begun to crack down on the use of cash. Examples: Italy http://www.businessweek.com/magazine/italys-cap-on-cash-payments-12082011.html http://www.businessweek.com/magazine/italys-cap-on-cash-paym... Spain http://www.bloomberg.com/news/2012-04-11/spain-to-limit-cash-transactions-to-fight-tax-fraud-correct-.html http://www.bloomberg.com/news/2012-04-11/spain-to-limit-cash... USA (Louisiana) http://www.klfy.com/story/15717759/second-hand-dealer-law http://www.klfy.com/story/15717759/second-hand-dealer-law There are more examples beyond this, but there may indeed be a trend emerging. You also risk having cash stolen by border agents when crossing international borders. Many countries expect you to declare whether or not you are carrying more than a certain amount.
  - malandrew 13y ago
    Exactly. This is my favorite abuse of this power: http://en.wikipedia.org/wiki/United_States_v._$124,700_in_U.S._Currency http://en.wikipedia.org/wiki/United_States_v._$124,700_in_U....
    - mpyne 13y ago
      Wow, that looks like a title you'd see on /r/nottheonion
      - malandrew 13y ago
        The dissenting opinion is a worth a read.
- cabalamat 13y ago
  > I'm trying to think of some <Foo> that doesn't work in the pattern of "<Foo> will prosper until governments or banks decide to crush it". How about agriculture? Governments can't destroy that, because everyone would starve, then they wouldn't be a government any more. Or the internet -- a government can't ban that, if they want to be richer than North Korea (which most do).
gojomo 13y ago
The 'crush' scenario presented here -- governments using their fiat currency power to alternately buy and dump Bitcoins, creating a boom-bust cycle that scares other people away -- doesn't seem very smart or likely to succeed. Speculators would recognize it and attempt to profit by front-running the government operations (increasing the cost to the government, and dampening the volatility). Bitcoin service providers could offer volatility-protection (instant conversion to other currencies), as some do already. Governments could lose money on each manipulated boom-bust cycle, and at the bottom of each cycle, Bitcoin would still be alive and ready for new uses. Far more likely, in my mind, is an attempt to coopt Bitcoin. Officially approve it, with reporting/identity conditions that don't encumber legal use but ensure tax collection. Or, launch a Bitcoin-like competitor backed by government redemption guarantees (T-Bills, TIPS, etc). So, above-ground businesses can get most of the crypto-currency benefits without the rough edges created by its most anti-State qualities.
- dragontamer 13y ago
  The problem with BTC is how long it takes to confirm a transaction. Paper-based transaction is instant, you hand bills over and you're done. Credit cards are the same. BTCs take 4 or 5 block-chains before they're "confirmed", and you don't really know if your customer has "double-spent you" until the confirmation occurs. This makes BTC unacceptable to the vast majority of typical transactions. Its fine for say... online shopping, because 30 minutes of confirmation time isn't that big of a deal. However, waiting 30, 40, or 50 minutes for confirmations is not the best way to buy coffee in the morning.
  - vbuterin 13y ago
    Most merchants in practice accept transactions immediately as soon as they receive the unconfirmed notification. The security is not 100% perfect that way, but it's still way better than the risk of getting a chargeback with a more traditional system.
  - gojomo 13y ago
    This theoretical problem isn't that big in practice. Ensuring your malicious second-spend 'wins' the confirmation race requires a lot more effort than an ill-gotten morning cup of coffee is worth. If it actually started happening -- burning merchants who accept 0-confirmation transactions -- a bunch of cheap countermeasures could be adopted. For example, only accepting 0-confirmation transactions from certain origins with a traceable reputation, performance bond at trusted third party, or subject to other recourse/debt-collection. Or, having a consortium of major pools commit (for a tiny fee) that they haven't seen a competing transaction and will prefer the one presented first, by the merchant.
dragontamer 13y ago
Bitcoin is not anonymous, why do people keep harping this falsehood? At best, Bitcoin is pseudononymous. But every single transaction is forever kept in the Bitcoin Ledger, for the rest of time (or at least... till the end of BTC's existence).
- gojomo 13y ago
  Yes. And even at "the end of BTC's existence", archival copies of the blockchain will persist. And, some subsequent attempts at an improved cryptocurrency are likely to try to include the past blockchain balances as an initial endowment (or balances as of a certain checkpoint). Doing so would help lay claim to being Bitcoin's rightful heir, and attract the immediate financial interest of people who've already proven their interest in cryptocurrencies.
nhaehnle 13y ago
It is immune to the inflation that plagues all fiat currencies Funny thing is, most actual economists would say that the inflexibility of Bitcoin is a disadvantage. Discussions of Bitcoin are dominated by people for whom certain rules about money (such as: "it must be a forever fixed amount") are basically articles of faith. Outside of this comparatively small population, people primarily care about other things, such as good economic growth, full employment, social equity in the sense of equality, and all sorts of things. Having a forever fixed supply of money tends to be detrimental for those things.
- temphn 13y ago
  most actual economists Economists haven't had a great track record recently. Computer scientists have. Maybe the economists should take a few lessons from the people who've not just predicted the future, but invented it? Here's a trifecta of Goolsbee, Bernanke, and Krugman on their pre-crisis predictions. http://www.nytimes.com/2007/03/29/business/29scene.html?_r=0 http://www.nytimes.com/2007/03/29/business/29scene.html?_r=0 ‘Irresponsible’ Mortgages Have Opened Doors to Many of the Excluded By AUSTAN GOOLSBEE Published: March 29, 2007 Congress is contemplating a serious tightening of regulations to make the new forms of lending more difficult. New research from some of the leading housing economists in the country, however, examines the long history of mortgage market innovations and suggests that regulators should be mindful of the potential downside in tightening too much. ... These economists followed thousands of people over their lives and examined the evidence for whether mortgage markets have become more efficient over time. Lost in the current discussion about borrowers’ income levels in the subprime market is the fact that someone with a low income now but who stands to earn much more in the future would, in a perfect market, be able to borrow from a bank to buy a house. That is how economists view the efficiency of a capital market: people’s decisions unrestricted by the amount of money they have right now. And this study shows that measured this way, the mortgage market has become more perfect, not more irresponsible. http://www.federalreserve.gov/boarddocs/speeches/2004/20040220/ http://www.federalreserve.gov/boarddocs/speeches/2004/200402... Remarks by Governor Ben S. Bernanke At the meetings of the Eastern Economic Association, Washington, DC February 20, 2004 The Great Moderation One of the most striking features of the economic landscape over the past twenty years or so has been a substantial decline in macroeconomic volatility. ... My view is that improvements in monetary policy, though certainly not the only factor, have probably been an important source of the Great Moderation. http://krugman.blogs.nytimes.com/2012/03/05/economics-in-the-crisis/ http://krugman.blogs.nytimes.com/2012/03/05/economics-in-the... What you can criticize economists for – and indeed, what I sometimes berate myself for – is failing even to see that something like this crisis was a fairly likely event. In retrospect, it shouldn’t have been hard to notice the rise of shadow banking, banking that is carried out by non- depository institutions such as investment banks financing themselves through repo. And it shouldn’t have been hard to realize that an institution using overnight borrowing to invest in longer-term and somewhat illiquid assets was inherently vulnerable to something functionally equivalent to a classic bank run – and, furthermore, that the institutions doing this were neither backed by deposit insurance nor effectively regulated. Economists, of all people, should have been on guard for the fallacy of misplaced concreteness, should have realized that not everything that functions like a bank and creates bank-type systemic risks looks like a traditional bank, a big marble building with rows of tellers. And I plead guilty to falling into that fallacy. I was vaguely aware of the existence of a growing sector of financial institutions that didn’t look like conventional banks, and weren’t regulated like conventional banks, but engaged in bank-like activities. Yet I gave no thought to the systemic risks. Even more broadly, economists should have been aware of the dangers of leverage. This was hardly a new concern. Back in 1933 – yes, 1933 — Irving Fisher published his classic paper on debt deflation, that is, on the way high levels of debt create the possibility of a self-reinforcing downward spiral. And the paper remains astonishingly relevant; aside from a few archaisms of style it could have been written from today’s headlines. So remembering Fisher all by itself should have been enough to rouse at least a few worries as household debt rose dramatically relative to income, not just in America, but in a number of European nations too. Again, I plead guilty to negligence. I had especially little excuse for being oblivious to these dangers given that I had actually laid great stress on balance-sheet factors in causing financial crises in emerging market. True, those crises had a lot to do with currency mismatch – basically, private debt in other countries’ currencies, so that a speculative attack on a currency could quickly translate into a crippling collapse of domestic demand. But I and others should have seen that this was only one possible channel for balance-sheet crises, that plunges in housing prices or for that matter income could have the same effect.
chx 13y ago
It is not prospering by any stretch of imagination, what are you talking about?
- i_am_dead 13y ago
  It has a ten digit market cap, how is that not prospering?
csomar 13y ago
My humble perspective: Nothing matters as long as profitability and opportunity exist. Bitcoin will continue its growth as long as it's profitable to operate a miner, a business, an exchange and as long as there is an opportunity to run something. People will go where the money is. My other humble take: High-rises and businesses are built by continuous and large flow of money (wealth) into a system. Bitcoin business will continue to grow and solidify (have better security, legal status, branding...) as the money keeps flowing to the system.
felipelalli 13y ago
It is much easier for governments and banks invest in negative media like this poor and spiteful article. A massive negative media do some tickle, but Bitcoin always back stronger.
somejan 13y ago
Every currency created since the advent of money 2,700 years ago has fit nicely into one of two classifications: Either it was a representative money system, deriving its worth from a link to some physical store of value like gold, silver or gemstones; or it was fiat [...] And then the author suddenly stops and ignores the next obvious question: where do gold, silver and gemstones get their value from? The simple answer is because people like to have them and their supply is more or less fixed (which causes people to believe they won't suddenly lose their value). The exact same thing applies to bitcoins: bitcoin is the store of value. The US already tried once to make a certain type of currency it couldn't control illegal: in 1933 it forbid anyone to own gold. That didn't make gold worthless any more than it will make bitcoins worthless. The only thing I believe that could do that to bitcoin is if it is replaced by another digital currency.

35 points by iProject 13y ago

nullc 13y ago

I'm trying to think of some <Foo> that doesn't work in the pattern of "<Foo> will prosper until governments or banks decide to crush it". Excepting the trivial cases of things that won't prosper regardless, I'm not coming up with anything. :) Some of the assumptions in the article seem pretty weak to me: E.g. "Anonymity threatens control" uh, cash is a lot more anonymous than Bitcoin. The structure of cash's anonymity limitations are somewhat different than Bitcoin's but it's hard to argue that Bitcoin is too different on that point. ... and it's not just cash, any other valuable commodity is fairly anonymous, and easily argued as more so than Bitcoin— yet, as far as I am aware, there is no great effort afoot to outlaw coal.

Retric 13y ago
It's effectively illegal to transport large amounts of cash in the US. As in cops will confiscate it and you have no recourse unless the "preponderance of the evedence" suggests it has no link to any crime.
- noarchy 13y ago
  Governments have already begun to crack down on the use of cash. Examples: Italy http://www.businessweek.com/magazine/italys-cap-on-cash-payments-12082011.html http://www.businessweek.com/magazine/italys-cap-on-cash-paym... Spain http://www.bloomberg.com/news/2012-04-11/spain-to-limit-cash-transactions-to-fight-tax-fraud-correct-.html http://www.bloomberg.com/news/2012-04-11/spain-to-limit-cash... USA (Louisiana) http://www.klfy.com/story/15717759/second-hand-dealer-law http://www.klfy.com/story/15717759/second-hand-dealer-law There are more examples beyond this, but there may indeed be a trend emerging. You also risk having cash stolen by border agents when crossing international borders. Many countries expect you to declare whether or not you are carrying more than a certain amount.
- malandrew 13y ago
  Exactly. This is my favorite abuse of this power: http://en.wikipedia.org/wiki/United_States_v._$124,700_in_U.S._Currency http://en.wikipedia.org/wiki/United_States_v._$124,700_in_U....
  - mpyne 13y ago
    Wow, that looks like a title you'd see on /r/nottheonion
    - malandrew 13y ago
      The dissenting opinion is a worth a read.
cabalamat 13y ago
> I'm trying to think of some <Foo> that doesn't work in the pattern of "<Foo> will prosper until governments or banks decide to crush it". How about agriculture? Governments can't destroy that, because everyone would starve, then they wouldn't be a government any more. Or the internet -- a government can't ban that, if they want to be richer than North Korea (which most do).

gojomo 13y ago

The 'crush' scenario presented here -- governments using their fiat currency power to alternately buy and dump Bitcoins, creating a boom-bust cycle that scares other people away -- doesn't seem very smart or likely to succeed. Speculators would recognize it and attempt to profit by front-running the government operations (increasing the cost to the government, and dampening the volatility). Bitcoin service providers could offer volatility-protection (instant conversion to other currencies), as some do already. Governments could lose money on each manipulated boom-bust cycle, and at the bottom of each cycle, Bitcoin would still be alive and ready for new uses. Far more likely, in my mind, is an attempt to coopt Bitcoin. Officially approve it, with reporting/identity conditions that don't encumber legal use but ensure tax collection. Or, launch a Bitcoin-like competitor backed by government redemption guarantees (T-Bills, TIPS, etc). So, above-ground businesses can get most of the crypto-currency benefits without the rough edges created by its most anti-State qualities.

dragontamer 13y ago
The problem with BTC is how long it takes to confirm a transaction. Paper-based transaction is instant, you hand bills over and you're done. Credit cards are the same. BTCs take 4 or 5 block-chains before they're "confirmed", and you don't really know if your customer has "double-spent you" until the confirmation occurs. This makes BTC unacceptable to the vast majority of typical transactions. Its fine for say... online shopping, because 30 minutes of confirmation time isn't that big of a deal. However, waiting 30, 40, or 50 minutes for confirmations is not the best way to buy coffee in the morning.
- vbuterin 13y ago
  Most merchants in practice accept transactions immediately as soon as they receive the unconfirmed notification. The security is not 100% perfect that way, but it's still way better than the risk of getting a chargeback with a more traditional system.
- gojomo 13y ago
  This theoretical problem isn't that big in practice. Ensuring your malicious second-spend 'wins' the confirmation race requires a lot more effort than an ill-gotten morning cup of coffee is worth. If it actually started happening -- burning merchants who accept 0-confirmation transactions -- a bunch of cheap countermeasures could be adopted. For example, only accepting 0-confirmation transactions from certain origins with a traceable reputation, performance bond at trusted third party, or subject to other recourse/debt-collection. Or, having a consortium of major pools commit (for a tiny fee) that they haven't seen a competing transaction and will prefer the one presented first, by the merchant.

dragontamer 13y ago

Bitcoin is not anonymous, why do people keep harping this falsehood? At best, Bitcoin is pseudononymous. But every single transaction is forever kept in the Bitcoin Ledger, for the rest of time (or at least... till the end of BTC's existence).

gojomo 13y ago
Yes. And even at "the end of BTC's existence", archival copies of the blockchain will persist. And, some subsequent attempts at an improved cryptocurrency are likely to try to include the past blockchain balances as an initial endowment (or balances as of a certain checkpoint). Doing so would help lay claim to being Bitcoin's rightful heir, and attract the immediate financial interest of people who've already proven their interest in cryptocurrencies.

nhaehnle 13y ago

It is immune to the inflation that plagues all fiat currencies Funny thing is, most actual economists would say that the inflexibility of Bitcoin is a disadvantage. Discussions of Bitcoin are dominated by people for whom certain rules about money (such as: "it must be a forever fixed amount") are basically articles of faith. Outside of this comparatively small population, people primarily care about other things, such as good economic growth, full employment, social equity in the sense of equality, and all sorts of things. Having a forever fixed supply of money tends to be detrimental for those things.

temphn 13y ago
most actual economists Economists haven't had a great track record recently. Computer scientists have. Maybe the economists should take a few lessons from the people who've not just predicted the future, but invented it? Here's a trifecta of Goolsbee, Bernanke, and Krugman on their pre-crisis predictions. http://www.nytimes.com/2007/03/29/business/29scene.html?_r=0 http://www.nytimes.com/2007/03/29/business/29scene.html?_r=0 ‘Irresponsible’ Mortgages Have Opened Doors to Many of the Excluded By AUSTAN GOOLSBEE Published: March 29, 2007 Congress is contemplating a serious tightening of regulations to make the new forms of lending more difficult. New research from some of the leading housing economists in the country, however, examines the long history of mortgage market innovations and suggests that regulators should be mindful of the potential downside in tightening too much. ... These economists followed thousands of people over their lives and examined the evidence for whether mortgage markets have become more efficient over time. Lost in the current discussion about borrowers’ income levels in the subprime market is the fact that someone with a low income now but who stands to earn much more in the future would, in a perfect market, be able to borrow from a bank to buy a house. That is how economists view the efficiency of a capital market: people’s decisions unrestricted by the amount of money they have right now. And this study shows that measured this way, the mortgage market has become more perfect, not more irresponsible. http://www.federalreserve.gov/boarddocs/speeches/2004/20040220/ http://www.federalreserve.gov/boarddocs/speeches/2004/200402... Remarks by Governor Ben S. Bernanke At the meetings of the Eastern Economic Association, Washington, DC February 20, 2004 The Great Moderation One of the most striking features of the economic landscape over the past twenty years or so has been a substantial decline in macroeconomic volatility. ... My view is that improvements in monetary policy, though certainly not the only factor, have probably been an important source of the Great Moderation. http://krugman.blogs.nytimes.com/2012/03/05/economics-in-the-crisis/ http://krugman.blogs.nytimes.com/2012/03/05/economics-in-the... What you can criticize economists for – and indeed, what I sometimes berate myself for – is failing even to see that something like this crisis was a fairly likely event. In retrospect, it shouldn’t have been hard to notice the rise of shadow banking, banking that is carried out by non- depository institutions such as investment banks financing themselves through repo. And it shouldn’t have been hard to realize that an institution using overnight borrowing to invest in longer-term and somewhat illiquid assets was inherently vulnerable to something functionally equivalent to a classic bank run – and, furthermore, that the institutions doing this were neither backed by deposit insurance nor effectively regulated. Economists, of all people, should have been on guard for the fallacy of misplaced concreteness, should have realized that not everything that functions like a bank and creates bank-type systemic risks looks like a traditional bank, a big marble building with rows of tellers. And I plead guilty to falling into that fallacy. I was vaguely aware of the existence of a growing sector of financial institutions that didn’t look like conventional banks, and weren’t regulated like conventional banks, but engaged in bank-like activities. Yet I gave no thought to the systemic risks. Even more broadly, economists should have been aware of the dangers of leverage. This was hardly a new concern. Back in 1933 – yes, 1933 — Irving Fisher published his classic paper on debt deflation, that is, on the way high levels of debt create the possibility of a self-reinforcing downward spiral. And the paper remains astonishingly relevant; aside from a few archaisms of style it could have been written from today’s headlines. So remembering Fisher all by itself should have been enough to rouse at least a few worries as household debt rose dramatically relative to income, not just in America, but in a number of European nations too. Again, I plead guilty to negligence. I had especially little excuse for being oblivious to these dangers given that I had actually laid great stress on balance-sheet factors in causing financial crises in emerging market. True, those crises had a lot to do with currency mismatch – basically, private debt in other countries’ currencies, so that a speculative attack on a currency could quickly translate into a crippling collapse of domestic demand. But I and others should have seen that this was only one possible channel for balance-sheet crises, that plunges in housing prices or for that matter income could have the same effect.

chx 13y ago

It is not prospering by any stretch of imagination, what are you talking about?

i_am_dead 13y ago
It has a ten digit market cap, how is that not prospering?

csomar 13y ago

My humble perspective: Nothing matters as long as profitability and opportunity exist. Bitcoin will continue its growth as long as it's profitable to operate a miner, a business, an exchange and as long as there is an opportunity to run something. People will go where the money is. My other humble take: High-rises and businesses are built by continuous and large flow of money (wealth) into a system. Bitcoin business will continue to grow and solidify (have better security, legal status, branding...) as the money keeps flowing to the system.

felipelalli 13y ago

It is much easier for governments and banks invest in negative media like this poor and spiteful article. A massive negative media do some tickle, but Bitcoin always back stronger.

somejan 13y ago

Every currency created since the advent of money 2,700 years ago has fit nicely into one of two classifications: Either it was a representative money system, deriving its worth from a link to some physical store of value like gold, silver or gemstones; or it was fiat [...] And then the author suddenly stops and ignores the next obvious question: where do gold, silver and gemstones get their value from? The simple answer is because people like to have them and their supply is more or less fixed (which causes people to believe they won't suddenly lose their value). The exact same thing applies to bitcoins: bitcoin is the store of value. The US already tried once to make a certain type of currency it couldn't control illegal: in 1933 it forbid anyone to own gold. That didn't make gold worthless any more than it will make bitcoins worthless. The only thing I believe that could do that to bitcoin is if it is replaced by another digital currency.