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Why Bitcoin Matters

interstitial 13y ago
Personally, I prefer websites that take as a form of payment the riskiest tranches of securitized subprime mortgages or cosmetic surgery loans, while amplifying risk with my fundamental misunderstanding of default swaps.
untilHellbanned 13y ago
"Finally, I’d like to address the claim made by some critics that Bitcoin is a haven for bad behavior..." Just need more examples like Dogecoin funding the Jamaican Bobsled team[1] to keep the narrative going in the right direction. [1]http://www.theguardian.com/technology/2014/jan/20/jamaican-bobsled-team-raises-dogecoin-winter-olympics http://www.theguardian.com/technology/2014/jan/20/jamaican-b...
- willholloway 13y ago
  I've become a big Dogecoin proponent. I believe that Dogecoin will add another dimension to our online experience, and open up avenues for content creators to be rewarded that did not exist before. I'm all in.
  - adrianwaj 13y ago
    For sure, SoundCloud would be an awesome place for more tipping.
Aaronn 13y ago
Non-mobile version: http://dealbook.nytimes.com/2014/01/21/why-bitcoin-matters/ http://dealbook.nytimes.com/2014/01/21/why-bitcoin-matters/
easy_rider 13y ago
>The criticism that merchants will not accept Bitcoin due to its volatility is also incorrect. Bitcoin can be used entirely as a payment system; merchants do not need to hold any Bitcoin currency or be exposed to Bitcoin volatility at any time. Any consumer or merchant can trade in and out of Bitcoin and other currencies any time they want. I don't understand this. Someone is taking the risk right now. Currently it's the exchanges and merchants directly, because they rely on the exchanges. With high volatility merchants wouldn't be getting about the same amount in 1 hour turnover time right now. Everything in the process should be synced according to current exchange rates. Obviously technology makes this possible, but the technical implementation effort would be huge for widespread adoption. BTC as it stands now seems to be somewhat stabilizing, but anything is still possible until it becomes more widespread and trusted. Kind of paradoxical.
- eatitraw 13y ago
  > I don't understand this. Someone is taking the risk right now. Correct. > Currently it's the exchanges and merchants directly, because they rely on the exchanges. Incorrect. There is the solution: https://bitpay.com/ https://bitpay.com/ , which automatically does conversion for a small fee. Buyers pay in bitcoin, but sellers receives fiat money(e.g. USD). The risk is taken by bitpay, sellers always receive fixed amount in fiat money, and buyers have the window of 15 minutes to make BTC payment.
  - tptacek 13y ago
    "Fiat money" is as I've seen it used a political message, used most often to assumptively introduce the idea that government-backed currency is suspect. But fiat currencies are simply currencies that aren't backed by collateral. To the extent that you believe it's a currency and not a tradable instrument that happens to have interesting barter and liquidity characteristics (right now), Bitcoin is a fiat currency as well.
    - eatitraw 13y ago
      Well, in my comment I simply wanted to distinguish between state-run currencies and bitcoin. > But fiat currencies are simply currencies that aren't backed by collateral I've checked wikipedia, and one of the definitions for the term "fiat money" is "state-issued money which is neither convertible by law to any other thing, nor fixed in value in terms of any objective standard.". Bitcoin clearly doesn't fall under this definition. So your statement is not quite true.
      - deleted 13y ago
        [deleted]
      - gnaritas 13y ago
        Because one definition doesn't fit doesn't preclude the other from fitting. Bitcoin fits the third definition on your wikipedia page, so it is fiat currency.
    - 13y ago
candybar 13y ago
The part about bitcoin entirely as a payment system makes no sense, because both the consumer and the merchant need an existing payment system, to convert into and out of bitcoin for this to work, in which case bitcoin is just a middleman doing no work. I suppose some payment systems are localized and bitcoin can work as a global bridge, but that seems like a trivial legal hack that will be shut down soon.
- alextingle 13y ago
  The merchant needs a payment system that they trust, and the customer needs a payment system that they trust. But the payment systems don't really need to know or trust each other. He's saying that Bitcoin turns payment from a many-to-many problem, into a one-to-many problem.
  - candybar 13y ago
    Except, you're not getting around the problem here either - I need to find a real money payment system that the bitcoin exchange and I both trust and and the merchant needs to find a real money payment system that they and their bitcoin exchange both trust. You're doubling the problem no matter how you look at it, because the problem of you sending money to the bitcoin exchange is the exact same problem as you sending money to the merchant.
    - alextingle 13y ago
      But I can have an ongoing relationship with a single bitcoin exchange that I trust, rather than N merchants - any of whom might be dodgy.
      - candybar 13y ago
        Except that's exactly the problem that existing payment systems solve that bitcoin fails to solve. What problem do you see bitcoin solving as far as payment system goes for people who are not using bitcoin otherwise? People can buy from untrustworthy merchants quite easily right now. And bitcoin costs more - you pay the bitcoin exchange and the payment system and your merchant pays the bitcoin exchange and his payment system.
jt2190 13y ago
> The criticism that merchants will not accept Bitcoin > because of its volatility is also incorrect. Bitcoin can be > used entirely as a payment system; merchants do not need to > hold any Bitcoin currency or be exposed to Bitcoin > volatility at any time. Any consumer or merchant can trade > in and out of Bitcoin and other currencies > any time they want. I'm having trouble understanding this point of view because it implies that someone, somewhere is always willing to buy in to BTC, no matter the circumstances. So, two questions: 1. Is BTC somehow immune to currency crises like many government-backed currencies have experienced? 2. If BTC is not immune to crises, have any parties emerged that will act to "defend" BTC in a crisis?
- dmix 13y ago
  1. no, but stability will increase with mass adoption. It's not tied down to one specific geographic market as nation-state currencies. Once it's based on global trade then it requires global instability, which is a higher threshold. USD has a similar global stability because of that vs other currencies. 2. no, how would this would decentrally? You could pay into an insurance policy maybe, that pays out in alternative currencies?
  - kaonashi 13y ago
    > but stability will increase with mass adoption I don't see how this is realistic; the needs for bitcoins will be endogenous to the people using it, whereas the supply increases based on arbitrary constants (until it stops increasing altogether). That says to me that the more people that use it, the more volatile it will become (especially after the supply freezes). When it becomes less volatile, it's merely because the needs coincidentally line up with the supply (i.e. when transaction volume drops -- fewer people 'using' it).
    - wmf 13y ago
      Mass adoption may increase liquidity on the exchanges and thus provide short-term stability. I agree that Bitcoin cannot have any long-term stability.
- 13y ago
known 13y ago
There are only $1 trillion cash/coins in circulation. Everything else is debt. http://www.federalreserve.gov/releases/h41/current/h41.htm http://www.federalreserve.gov/releases/h41/current/h41.htm
- Guvante 13y ago
  The USD is a debt based currency, so that is expected. Bitcoins are a proof of work based currency, but unfortunately it acts more like a commodity at the moment.
  - varjag 13y ago
    Proof of useless work based, to be precise: the only reason work tokens are hash computations instead of say push-ups or soap bubbles is the ease of bookkeeping. So it always puzzled me why that aspect matters.
    - maaku 13y ago
      The fact that the work is useless is essential to the security of the system. It's a proof of sacrificed opportunity. If the proof of work was actually useful and monetizable, you might be able to pay for your mining via its utility, and that would completely destroy the security assumptions underlying bitcoin.
      - umanwizard 13y ago
        How so?
        maaku 13y ago
        It would cost "nothing" to mount an attack because the attack mining is profitable for other reasons.
        Guvante 13y ago
        Say instead of hashes it was computation cycles, so long as your computer is doing something then it counted. (I am ignoring the bookkeeping problems) I could take a supercomputer that I am using otherwise for economic benefit, and perform a whole bunch of mining with it, at no cost to me. Even better, I can go to several supercomputers and do this, all without costing any actual computation power. This would allow me to create a ton of power on the network, which could be used to overtake it and break the usual security guarantees. However with Bitcoin I have to stop doing anything else with all of this computing power, which is a problem.
hooande 13y ago
Andressen is making bitcoin out to be a decentralized paypal, when it was more intended to be a form of currency. It makes more sense as a long term investment or speculative bet than it does a way to transfer money from point A to point B. An analogy would be if person A and person B conducted a transaction by converting their money from dollars to euros or vice versa (assuming A and B are both in the same country). Depending on the current exchange rate, this could be a good or a bad thing for both of them. If the dollar is weak, both parties stand to lose. If the dollar is strong then it won't last because the market will quickly be flooded with people trying to get in on the deal. There is no way of controlling or predicting the bitcoin exchange rate. If I send money to someone in my country with paypal they are going to whack me with fees, but at least I know what the fees will be in advance. I can plan on it as a business. Having to deal with an unknown and uncontrolled exchange rate just doesn't sound fun. This is assuming that bitcoin stops having wild price swings over time and stabilizes to the level of established global currencies. It just doesn't make sense to perform a currency conversion when transferring money to someone who uses the same currency as the sender. This article was amazing and pmarca opened my eyes to uses of bitcoin that I never would have imagined. But the only thing I can't imagine is this new currency living up to the utility that is expected of it. Bitcoin the protocal, however, is freaking awesome. I expect to see a lot of startups taking advantage of some of the non-monetary uses, up to and including micropayments. It could be a very long time before bitcoin paychecks are mainstream. But electronic transactions of all kinds are going to be getting easier soon.
- dllthomas 13y ago
  "Bitcoin the protocal, however, is freaking awesome. I expect to see a lot of startups taking advantage of some of the non-monetary uses, up to and including micropayments." I agree with all of this except the implication that micropayments are a non-monetary use.
- nhaehnle 13y ago
  The micropayments claim is a red herring. If Bitcoin were to actually take off for micropayments, it would no longer scale, and/or the operation of Bitcoin nodes would be limited to people with very serious hardware. At that point, we're back to the game that is currently being played by banks, just with different players in charge. So it's understandable that many people hope that such a transition will happen and that they will end up in charge after that transition. For the society as a whole, however, Bitcoin does not have an inherent advantage that is sustainably scalable.
vasilipupkin 13y ago
So, one big reason for merchants to accept bitcoins is the high fees charged by credit card processors? So, suppose they cut the fees? Does that kill bitcoin ?
- pmorici 13y ago
  No, there are other things about Bitcoin that are highly desirable from a merchant's perspective even ignoring fees. 1. There are no unilateral charge backs with Bitcoin and 2. You don't have to worry about keeping sensitive customer information safe. It is impossible for you as a merchant to be responsible for fraud against your customers due to stolen credit card numbers if they are using Bitcoin. It has the same properties of a Cash transaction minus the in person requirement and the potential for easy theft. In fact if you do it right it would be nearly impossible for dishonest employees to steal money from your business. Taken in isolation it's easy to say well that isn't such a great advantage but when you look at Bitcoin vs anything else on the whole the advantages are clear.
  - chaz 13y ago
    But why would I want Bitcoin as a consumer? I want chargebacks if the merchant screws me over, I get a rebate/miles/points with every purchase, and some cards offer warranties and return protection. AmEx does a pretty good job at flagging fraudulent activity, and I'm off the hook for any related charges. Plus, there's still a risk of losing Bitcoin. The right bug/malware/vulnerability on my laptop or my smartphone can mean my BTC is lost or stolen. We all know that security is hard, and at best inconvenient -- and that people are lazy. If there are clear advantages to the vendor, it should be reflected in the price to the consumer. A 1% discount may get me interested, considering they'd save more than that on cc transaction fees alone.
    - Renaud 13y ago
      Not everyone has -or can have- a credit card. Bitcoin also allows anyone to accept payment which could vastly increase the range of products and services available: we can imagine that a lot of individuals and small businesses who do not have access to credit card payments will be able to offer their services and get paid.
minimax 13y ago
Bitcoin is the first Internet-wide payment system where transactions either happen with no fees or very low fees (down to fractions of pennies). Existing payment systems charge fees of around 2 percent to three percent As long as consumers are paid in their local currency and vendors pay their employees, their taxes, and their other costs in local currency, then bitcoin as a payment technology has similar costs as credit cards. Those costs are reflected through exchange fees and bid/offer spreads. Let's walk through a transaction. I want to buy something that costs 1 bitcoin. The going rate on the bitcoin exchange is $825 bid by $830 offered. I take my cash to the exchange and convert it to bitcoin. Assume exchange fees are .5%. To buy 1 bitcoin I pay $834.15 (fees included). I transfer the bitcoin to the vendor, who then does the reverse transaction. He recieves $820.875 (fees included). The cost for transaction was $13.275 (834.15 - 820.875) which comes out to 1.59%. That is cheaper than the oft quoted 2.5% rate for credit cards but is very much in the same ballpark. If you factor in that some credit cards give you 1% cash back then bitcoin and credit cards are back at basically even in terms of net transaction costs. With bitcoin as a payment technology, the transaction costs flow to the bitcoin exchanges, market makers, and dealers. A dealer is sort of like an exchange combined with a market maker. The dealer quotes you a price to buy or sell bitcoins and you transact directly (not on an exchange). The dealer, like a market maker, makes money on the bid/ask spread. The only reason I'm going on about this is because one of a16z's big bitcoin investments is in a company called Coinbase, which is a bitcoin dealer. When you buy or sell bitcoins with Coinbase, Coinbase always takes the other side of the transaction. They make money on the bid/ask spread, and in some cases ("instant exchange") they charge you a 1% fee on top. It's a pretty clever business. Just putting this out here so that everyone understands how the guys out there touting bitcoin for payments plan to make money from the people using bitcoin for payments.
- msvan 13y ago
  True, but the alternative vision is that we cut out the USD<->BTC exchange process entirely. For instance, I could get paid in BTC, then I go to Target and pay for their goods in BTC, whereafter they keep the BTC. But Andreessen Horowitz wouldn't like that, of course.
  - 13y ago
billyhoffman 13y ago
Some variation of "no or very low fees" appears 5 times in this article. Marc is doing a good job (re)setting the expectation that transaction fees are not going away. a16z's bitcoin companies are just going to utterly gut the existing payment industry's 2.5%
timelincoln 13y ago
Beautiful
comex 13y ago
Future email systems and social networks could refuse to accept incoming messages unless they were accompanied with tiny amounts of Bitcoin – tiny enough to not matter to the sender, but large enough to deter spammers, who today can send uncounted billions of spam messages for free with impunity. Heh. Talk about historically backward: http://en.wikipedia.org/wiki/Hashcash#Bitcoin http://en.wikipedia.org/wiki/Hashcash#Bitcoin
- SilasX 13y ago
  I was thinking the same thing. If you want to impose costs on people who send you emails, you can just strip out the proof of work component of bitcoin (which indeed predated it), and use that as a challenge/response system.
  - sirsar 13y ago
    Implemented in Bitmessage, with free anonymity on the side.
bluekite2000 13y ago
anyone has experience with remittance from US to countries that don't have a local bitcoin exchange? How would it work in such case since the receiver can't convert the money to the local currency?
- oafitupa 13y ago
  localbitcoins.com
kolev 13y ago
Bitcoin matters, but it won't survive "as is" ("thanks" to hoarders and speculators). It just brought attention to a problem, which will get solved more elegantly.
- drcode 13y ago
  Please let me know when web programming finally gets solved more elegantly, without the anachronistic ugliness of js/css/html.
  - kolev 13y ago
    Many have tried, but people keep using what they are used to. Same with Bitcoin. People will keep using their convenient credit cards regardless if they are a superior or a subpar technology. Until Bitcoin diehards get this simple fact and quit spreading delusions that Bitcoin is replacing cash, credit cards, and Western Union, people will not take them seriously.
    - drcode 13y ago
      Centralized technologies: Compuserve, MasterCard. Decentralized technologies: The Internet, Bitcoin.
      - reqres 13y ago
        So you're saying both can work?
    - CamperBob2 13y ago
      Cash and credit cards, no, probably not. But if I were Western Union I'd be shitting bricks.
Guvante 13y ago
> The practical consequence of solving this problem is that Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate. But bitcoin doesn't do this at all. This is what makes Bitcoin amazing, but it doesn't solve this issue yet. Bitcoin is interesting since it is a minor revelation from providing this, but it seems incorrect to assert that this is the cool thing about Bitcoins right now.
- vladd 13y ago
  The reason I feel bitcoin is a scam is due to such misunderstandings. Bitcoin is not what makes any of this possible, the research happening for 20+ years in the background is. Bitcoin is just a marketing term, a specific implementation of those principles that derives its power just from the number of clients installed across the world with it. All the arguments that Andreessen gave are not Bitcoin's, but are rather characteristic for all altcoins out there. When you leave the research out, all you end up with is a term which denotes the first runner in a long-tailed race - http://coinmarketcap.com/ http://coinmarketcap.com/ . And when you compute the long-term value, being today's winner of the race in terms of marketing and clients user-base is totally different than the open-sourced research that happened and what Andreessen invoked. Fiat currency is sustained by our obligation to pay taxes in it and the legal tender notion that the law offers to it. Bitcoin is not offering such uniqueness, nor in the law nor by being the only system which provides the features involved in the article. It's only power comes from the specificity of its installed client-base, and anyone who sustains otherwise is either too less technical to notice the difference or comes close to border-line fraud to manipulate its interest in this bubble, at least in my book.
  - kordless 13y ago
    I think it's safe to refer to most cryptocurrency methodologies as "Bitcoin" when talking to the masses. Making a casual relationship between misunderstandings of technology and a given implementation of it doesn't make a truth.
sigil 13y ago
Bitcoin is the first practical solution to a longstanding problem in computer science called the Byzantine Generals Problem. Wait, isn't Paxos arguably the first practical solution to BGP? [0] [1] It's been in production use at Google since at least 2006. [2] Furthermore, Paxos actually has a proof that timely consensus will be reached. Do we have the same level of rock-solid mathematical certainty about Bitcoin yet? The Eyal-Sirer paper [3] from late 2013 raised some concerns about a new mining strategy that might lower the attack threshold from 50% to 33%. Ed Felton's group at Princeton responded with some interesting analysis from game theory [4], but AFAIK there is no rigorous proof yet that the selfish mining equilibrium isn't a real threat. If Bitcoin is The Way of the Future (I hope it is), we need to be sure about these things. Hand-waving statements about how Bitcoin isn't vulnerable because no one has found an exploit yet [5] are ridiculous and dangerous. [0] http://en.wikipedia.org/wiki/Paxos_(computer_science)#Byzantine_Paxos http://en.wikipedia.org/wiki/Paxos_(computer_science)#Byzant... [1] http://read.seas.harvard.edu/~kohler/class/08w-dsi/mazieres07paxos.pdf http://read.seas.harvard.edu/~kohler/class/08w-dsi/mazieres0... [2] http://research.google.com/archive/chubby.html http://research.google.com/archive/chubby.html [3] http://arxiv.org/pdf/1311.0243v2.pdf http://arxiv.org/pdf/1311.0243v2.pdf [4] https://freedom-to-tinker.com/blog/felten/bitcoin-isnt-so-broken-after-all/ https://freedom-to-tinker.com/blog/felten/bitcoin-isnt-so-br... [5] https://twitter.com/cdixon/status/412447615331360768 https://twitter.com/cdixon/status/412447615331360768
- hendzen 13y ago
  No, Paxos is not a solution to BGP. Paxos explicitly does not consider malicious processes. EDIT: fixed typo
  - sigil 13y ago
    Paxos is Byzantine Fault Tolerant. A malicious node is a special case of failed node. "The objective of Byzantine fault tolerance is to be able to defend against Byzantine failures, in which components of a system fail in arbitrary ways (i.e., not just by stopping or crashing but by processing requests incorrectly, corrupting their local state, and/or producing incorrect or inconsistent outputs)." http://en.wikipedia.org/wiki/Byzantine_fault_tolerance http://en.wikipedia.org/wiki/Byzantine_fault_tolerance
riemannzeta 13y ago
Bitcoin is a digital bearer instrument. It is a way to exchange money or assets between parties with no pre-existing trust: A string of numbers is sent over email or text message in the simplest case. The sender doesn’t need to know or trust the receiver or vice versa. Related, there are no chargebacks – this is the part that is literally like cash – if you have the money or the asset, you can pay with it; if you don’t, you can’t. This is brand new. This has never existed in digital form before. Doesn't this reveal the flaw in the "Bitcoin is the solution to the Byzantine Generals' Problem" argument? My understanding is that the bulk of transactions costs associated with most payment systems is associated with chargebacks. Some result from fraud by the payer and some by the payee. Regardless, a digital bearer instrument doesn't eliminate these failure modes; it simply avoids them entirely. If the BGP is about solving the problem of fraud, then Bitcoin hasn't solved it. It's simply avoided it.
- eurleif 13y ago
  >If the BGP is about solving the problem of fraud, then Bitcoin hasn't solved it. Do you have any idea what the BGP is?
  - riemannzeta 13y ago
    I'm not an expert, but I read the paper. So you don't need an intermediary to confirm that a particular digital transaction took place between two people. By analogy to the original problem as stated, that's like saying you don't need an intermediary to confirm that a message with particular content was delivered between two generals. You still need an intermediary to confirm that the recipient is going to act on it as intended. And I believe the history of Silk Road and its would be successors is evidence that an intermediary is still required post-Bitcoin. So you don't have to worry about the money not being there. You still need an escrow agent. http://www.nytimes.com/2014/01/19/business/eagle-scout-idealist-drug-trafficker.html http://www.nytimes.com/2014/01/19/business/eagle-scout-ideal...
    - eurleif 13y ago
      >By analogy to the original problem as stated, that's like saying you don't need an intermediary to confirm that a message with particular content was delivered between two generals. No, that's not analogous. Bitcoin prevents double-spending. It doesn't just deliver messages. You're talking about a whole other level of cooperation. It's true that Bitcoin doesn't guarantee that, but no one said it did, and that doesn't imply it doesn't really solve BGP. Bitcoin does have a built-in feature, multisig transactions, that makes a more-trustworthy form of escrow possible.
asciimo 13y ago
I'm a Bitcoin believer but I feel a little embarrassed after reading this. I'm impressed that Marc Andreessen can get an entire Dealbook page to advertise a pet technology without any fact checking. (Is that the point of Dealbook? I almost never read it.) > Even Netflix, a completely virtual service, is only available in about 40 countries. The implication is that mere payment logistics are inhibiting Netflix's internationalization. What about copyright and regional distribution restrictions? > Ben S. Bernanke, formerly Federal Reserve chairman, recently wrote that digital currencies like Bitcoin “may hold long-term promise, particularly if they promote a faster, more secure and more efficient payment system.” Bernanke never said this (http://imaginarymarkets.com/reddit-corrects-bitcoin-quotes-and-provides-more-quotes-with-sources/ http://imaginarymarkets.com/reddit-corrects-bitcoin-quotes-a...), and it's tacky to perpetuate this falsehood. > But I hope that I have given you a sense of the enormous promise of Bitcoin. Indeed, he succeeded here, though a little too breathlessly.
- oafitupa 13y ago
  > What about copyright and regional distribution restrictions? Sounds like the kind of problems centralized services always run into.
- marcamillion 13y ago
  > Bernanke never said this (http://imaginarymarkets.com/reddit-corrects-bitcoin-quotes-a... http://imaginarymarkets.com/reddit-corrects-bitcoin-quotes-a...), and it's tacky to perpetuate this falsehood. I don't understand this. He did say it....here is the paragraph in it's entirety from his address to the Senate: Historically, virtual currencies have been viewed as a form of “electronic money” or area of payment system technology that has been evolving over the past 20 years. Over time, these types of innovations have received attention from Congress as well as U.S. regulators. For example, in 1995, the U.S. House of Representatives held hearings on “the future of money” at which early versions of virtual currencies and other innovations were discussed. Vice Chairman Alan Blinder’s testimony at that time made the key point that while these types of innovations may pose risks related to law enforcement and supervisory matters, there are also areas in which they may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system. He was using Vice Chairman Alan Blinder's testimony to prove the point that while those innovations may pose risks there are areas which they may hold long-term promise. So not sure what you mean by he didn't say that. Marc's original statement is indeed accurate, per the transcript of Bernanke's speech. [1] [1] - http://qz.com/148399/ben-bernanke-bitcoin-may-hold-long-term-promise/ http://qz.com/148399/ben-bernanke-bitcoin-may-hold-long-term...
nether 13y ago
Remember when everyone said bitcoin was doomed because it's deflationary?
- base698 13y ago
  That's only people that read the 101 level of how the economy works and don't consider that bitcoin is infinitely divisible practically, unlike gold.
  - reqres 13y ago
    Unless you're saying that you can split 1 bitcoin into 2 bitcoins, I think your reasoning is flawed. Or looking at it another way, inventing a new denomination like a millicent (= 0.001c) will automatically increase our money supply...
    - base698 13y ago
      So with our currency if it becomes wildly deflationary with a single penny buying a car--how do you buy a cup of coffee? That is the practical problem with deflation. With bitcoin it can always be made smaller.
      - reqres 13y ago
        Governments can always invent a new denomination. Mostly its been in the other direction (take off orders of magnitude) But the scenario you're citing isn't the central issue when it comes to deflation. Deflation leads to a negative spiral because it pays off to defer any kind of spending - thereby slamming on the economic brakes. Notable example is Japan in 90s - deflation has been a major factor in its meagre growth then and even into the 2000s. The BoJ's unwillingness to adopt a sufficiently expansionary monetary policy likely exacerbated the problem
  - Crito 13y ago
    I'd say that gold is infinitely divisible in practice, as much or moreso than bitcoin. There is what, a USD dollar or two worth of gold leaf in Goldschläger? You can trivially get down to flakes of gold worth fractions of pennies. The only problem is the cost of division (making leaf is somewhat labor intensive, but not prohibitively so by any stretch). The hard limit is $1e-20, according to wolfram alpha. IIRC bitcoin will only get you down to e-8.
chris123 13y ago
The crypto currency market = "winner take all" market ("all" >= 80%). That said, if the capital costs (mostly mining hardware) and operating costs (mostly electricity, with some rent and labor) leave room for a low-cost producer to enter the market (and the switching costs are not too high). Time will tell. Evolution will do its magic and the fittest will survive (at least until the wheel turns round again). Regardless of who "wins," crypto-currency-based disruptors are a comin' to a status quo near you. And that's a good thing.
deegles 13y ago
Aren't transaction costs being "paid for" by all those people running mining rigs? All that processing power used to confirm your transaction cost someone real money. Transaction fees ostensibly pay for this, but I haven't seen anyone do the math on how much to charge to make transactions break even. As the difficulty gets higher and higher, miners will have to rely on these fees to make any profit. As a side note, is it possible to build mining rigs optimized for transactions vs. mining? or is that the same job?
- lostsock 13y ago
  It's the same job. The way that transactions are processed is that they are included in the block that is mined. At the moment there is an extra 25 BTC reward for mining a block in addition to the transaction fees of those transactions you have included but over time this extra reward will diminish to 0.
lectrick 13y ago
The best lesson Bitcoin taught me is that the currencies we grew up with are just a shared illusion.
- jude- 13y ago
  How so? Currencies are only an abstraction layer on top of goods and services. Instead of directly trading my goods and services for yours, we use a currency--a common "interface" for doing so. The currency doesn't have intrinsic value; the reason it has value at all is because you can exchange it for a wide variety of goods and services. That's why people want dollars, but not Monopoly money.
  - lectrick 13y ago
    > The currency doesn't have intrinsic value; That is the #1 criticism of Bitcoin. Which means it's a meaningless criticism.
    - hashmap 13y ago
      It isn't though - it's a way to illustrate Bitcoin's usefulness as a currency as "worse than gold." I'd put bitcoin's inherently deflationary nature, inability to perform chargebacks, vulnerability to selfish mining, incentivizing the waste of electricity, or a myriad of its other problems far higher on the list than the fact that it has no intrinsic value. Outside the above argument, its lack of intrinsic value isn't that common a criticism, nor is it really relevant.
panabee 13y ago
this may be a stupid question, but how does the cap of 21 million coins affect bitcoin? does it not matter because each bitcoin is infinitely divisible?
- sirsar 13y ago
  Divisible to 8 decimal places. There are thus 2 quadrillion atomic units.
judk 13y ago
I wish Will Satire would explain the etymology of "Why X Matters"

Personally, I prefer websites that take as a form of payment the riskiest tranches of securitized subprime mortgages or cosmetic surgery loans, while amplifying risk with my fundamental misunderstanding of default swaps.

untilHellbanned 13y ago

"Finally, I’d like to address the claim made by some critics that Bitcoin is a haven for bad behavior..." Just need more examples like Dogecoin funding the Jamaican Bobsled team[1] to keep the narrative going in the right direction. [1]http://www.theguardian.com/technology/2014/jan/20/jamaican-bobsled-team-raises-dogecoin-winter-olympics http://www.theguardian.com/technology/2014/jan/20/jamaican-b...

willholloway 13y ago
I've become a big Dogecoin proponent. I believe that Dogecoin will add another dimension to our online experience, and open up avenues for content creators to be rewarded that did not exist before. I'm all in.
- adrianwaj 13y ago
  For sure, SoundCloud would be an awesome place for more tipping.

Aaronn 13y ago

Non-mobile version: http://dealbook.nytimes.com/2014/01/21/why-bitcoin-matters/ http://dealbook.nytimes.com/2014/01/21/why-bitcoin-matters/

easy_rider 13y ago

>The criticism that merchants will not accept Bitcoin due to its volatility is also incorrect. Bitcoin can be used entirely as a payment system; merchants do not need to hold any Bitcoin currency or be exposed to Bitcoin volatility at any time. Any consumer or merchant can trade in and out of Bitcoin and other currencies any time they want. I don't understand this. Someone is taking the risk right now. Currently it's the exchanges and merchants directly, because they rely on the exchanges. With high volatility merchants wouldn't be getting about the same amount in 1 hour turnover time right now. Everything in the process should be synced according to current exchange rates. Obviously technology makes this possible, but the technical implementation effort would be huge for widespread adoption. BTC as it stands now seems to be somewhat stabilizing, but anything is still possible until it becomes more widespread and trusted. Kind of paradoxical.

eatitraw 13y ago
> I don't understand this. Someone is taking the risk right now. Correct. > Currently it's the exchanges and merchants directly, because they rely on the exchanges. Incorrect. There is the solution: https://bitpay.com/ https://bitpay.com/ , which automatically does conversion for a small fee. Buyers pay in bitcoin, but sellers receives fiat money(e.g. USD). The risk is taken by bitpay, sellers always receive fixed amount in fiat money, and buyers have the window of 15 minutes to make BTC payment.
- tptacek 13y ago
  "Fiat money" is as I've seen it used a political message, used most often to assumptively introduce the idea that government-backed currency is suspect. But fiat currencies are simply currencies that aren't backed by collateral. To the extent that you believe it's a currency and not a tradable instrument that happens to have interesting barter and liquidity characteristics (right now), Bitcoin is a fiat currency as well.
  - eatitraw 13y ago
    Well, in my comment I simply wanted to distinguish between state-run currencies and bitcoin. > But fiat currencies are simply currencies that aren't backed by collateral I've checked wikipedia, and one of the definitions for the term "fiat money" is "state-issued money which is neither convertible by law to any other thing, nor fixed in value in terms of any objective standard.". Bitcoin clearly doesn't fall under this definition. So your statement is not quite true.
    - deleted 13y ago
      [deleted]
    - gnaritas 13y ago
      Because one definition doesn't fit doesn't preclude the other from fitting. Bitcoin fits the third definition on your wikipedia page, so it is fiat currency.
  - 13y ago

candybar 13y ago

The part about bitcoin entirely as a payment system makes no sense, because both the consumer and the merchant need an existing payment system, to convert into and out of bitcoin for this to work, in which case bitcoin is just a middleman doing no work. I suppose some payment systems are localized and bitcoin can work as a global bridge, but that seems like a trivial legal hack that will be shut down soon.

alextingle 13y ago
The merchant needs a payment system that they trust, and the customer needs a payment system that they trust. But the payment systems don't really need to know or trust each other. He's saying that Bitcoin turns payment from a many-to-many problem, into a one-to-many problem.
- candybar 13y ago
  Except, you're not getting around the problem here either - I need to find a real money payment system that the bitcoin exchange and I both trust and and the merchant needs to find a real money payment system that they and their bitcoin exchange both trust. You're doubling the problem no matter how you look at it, because the problem of you sending money to the bitcoin exchange is the exact same problem as you sending money to the merchant.
  - alextingle 13y ago
    But I can have an ongoing relationship with a single bitcoin exchange that I trust, rather than N merchants - any of whom might be dodgy.
    - candybar 13y ago
      Except that's exactly the problem that existing payment systems solve that bitcoin fails to solve. What problem do you see bitcoin solving as far as payment system goes for people who are not using bitcoin otherwise? People can buy from untrustworthy merchants quite easily right now. And bitcoin costs more - you pay the bitcoin exchange and the payment system and your merchant pays the bitcoin exchange and his payment system.

jt2190 13y ago

> The criticism that merchants will not accept Bitcoin > because of its volatility is also incorrect. Bitcoin can be > used entirely as a payment system; merchants do not need to > hold any Bitcoin currency or be exposed to Bitcoin > volatility at any time. Any consumer or merchant can trade > in and out of Bitcoin and other currencies > any time they want. I'm having trouble understanding this point of view because it implies that someone, somewhere is always willing to buy in to BTC, no matter the circumstances. So, two questions: 1. Is BTC somehow immune to currency crises like many government-backed currencies have experienced? 2. If BTC is not immune to crises, have any parties emerged that will act to "defend" BTC in a crisis?

dmix 13y ago
1. no, but stability will increase with mass adoption. It's not tied down to one specific geographic market as nation-state currencies. Once it's based on global trade then it requires global instability, which is a higher threshold. USD has a similar global stability because of that vs other currencies. 2. no, how would this would decentrally? You could pay into an insurance policy maybe, that pays out in alternative currencies?
- kaonashi 13y ago
  > but stability will increase with mass adoption I don't see how this is realistic; the needs for bitcoins will be endogenous to the people using it, whereas the supply increases based on arbitrary constants (until it stops increasing altogether). That says to me that the more people that use it, the more volatile it will become (especially after the supply freezes). When it becomes less volatile, it's merely because the needs coincidentally line up with the supply (i.e. when transaction volume drops -- fewer people 'using' it).
  - wmf 13y ago
    Mass adoption may increase liquidity on the exchanges and thus provide short-term stability. I agree that Bitcoin cannot have any long-term stability.
13y ago

known 13y ago

There are only $1 trillion cash/coins in circulation. Everything else is debt. http://www.federalreserve.gov/releases/h41/current/h41.htm http://www.federalreserve.gov/releases/h41/current/h41.htm

Guvante 13y ago
The USD is a debt based currency, so that is expected. Bitcoins are a proof of work based currency, but unfortunately it acts more like a commodity at the moment.
- varjag 13y ago
  Proof of useless work based, to be precise: the only reason work tokens are hash computations instead of say push-ups or soap bubbles is the ease of bookkeeping. So it always puzzled me why that aspect matters.
  - maaku 13y ago
    The fact that the work is useless is essential to the security of the system. It's a proof of sacrificed opportunity. If the proof of work was actually useful and monetizable, you might be able to pay for your mining via its utility, and that would completely destroy the security assumptions underlying bitcoin.
    - umanwizard 13y ago
      How so?
      - maaku 13y ago
        It would cost "nothing" to mount an attack because the attack mining is profitable for other reasons.
      - Guvante 13y ago
        Say instead of hashes it was computation cycles, so long as your computer is doing something then it counted. (I am ignoring the bookkeeping problems) I could take a supercomputer that I am using otherwise for economic benefit, and perform a whole bunch of mining with it, at no cost to me. Even better, I can go to several supercomputers and do this, all without costing any actual computation power. This would allow me to create a ton of power on the network, which could be used to overtake it and break the usual security guarantees. However with Bitcoin I have to stop doing anything else with all of this computing power, which is a problem.

hooande 13y ago

Andressen is making bitcoin out to be a decentralized paypal, when it was more intended to be a form of currency. It makes more sense as a long term investment or speculative bet than it does a way to transfer money from point A to point B. An analogy would be if person A and person B conducted a transaction by converting their money from dollars to euros or vice versa (assuming A and B are both in the same country). Depending on the current exchange rate, this could be a good or a bad thing for both of them. If the dollar is weak, both parties stand to lose. If the dollar is strong then it won't last because the market will quickly be flooded with people trying to get in on the deal. There is no way of controlling or predicting the bitcoin exchange rate. If I send money to someone in my country with paypal they are going to whack me with fees, but at least I know what the fees will be in advance. I can plan on it as a business. Having to deal with an unknown and uncontrolled exchange rate just doesn't sound fun. This is assuming that bitcoin stops having wild price swings over time and stabilizes to the level of established global currencies. It just doesn't make sense to perform a currency conversion when transferring money to someone who uses the same currency as the sender. This article was amazing and pmarca opened my eyes to uses of bitcoin that I never would have imagined. But the only thing I can't imagine is this new currency living up to the utility that is expected of it. Bitcoin the protocal, however, is freaking awesome. I expect to see a lot of startups taking advantage of some of the non-monetary uses, up to and including micropayments. It could be a very long time before bitcoin paychecks are mainstream. But electronic transactions of all kinds are going to be getting easier soon.

dllthomas 13y ago
"Bitcoin the protocal, however, is freaking awesome. I expect to see a lot of startups taking advantage of some of the non-monetary uses, up to and including micropayments." I agree with all of this except the implication that micropayments are a non-monetary use.
nhaehnle 13y ago
The micropayments claim is a red herring. If Bitcoin were to actually take off for micropayments, it would no longer scale, and/or the operation of Bitcoin nodes would be limited to people with very serious hardware. At that point, we're back to the game that is currently being played by banks, just with different players in charge. So it's understandable that many people hope that such a transition will happen and that they will end up in charge after that transition. For the society as a whole, however, Bitcoin does not have an inherent advantage that is sustainably scalable.

vasilipupkin 13y ago

So, one big reason for merchants to accept bitcoins is the high fees charged by credit card processors? So, suppose they cut the fees? Does that kill bitcoin ?

pmorici 13y ago
No, there are other things about Bitcoin that are highly desirable from a merchant's perspective even ignoring fees. 1. There are no unilateral charge backs with Bitcoin and 2. You don't have to worry about keeping sensitive customer information safe. It is impossible for you as a merchant to be responsible for fraud against your customers due to stolen credit card numbers if they are using Bitcoin. It has the same properties of a Cash transaction minus the in person requirement and the potential for easy theft. In fact if you do it right it would be nearly impossible for dishonest employees to steal money from your business. Taken in isolation it's easy to say well that isn't such a great advantage but when you look at Bitcoin vs anything else on the whole the advantages are clear.
- chaz 13y ago
  But why would I want Bitcoin as a consumer? I want chargebacks if the merchant screws me over, I get a rebate/miles/points with every purchase, and some cards offer warranties and return protection. AmEx does a pretty good job at flagging fraudulent activity, and I'm off the hook for any related charges. Plus, there's still a risk of losing Bitcoin. The right bug/malware/vulnerability on my laptop or my smartphone can mean my BTC is lost or stolen. We all know that security is hard, and at best inconvenient -- and that people are lazy. If there are clear advantages to the vendor, it should be reflected in the price to the consumer. A 1% discount may get me interested, considering they'd save more than that on cc transaction fees alone.
  - Renaud 13y ago
    Not everyone has -or can have- a credit card. Bitcoin also allows anyone to accept payment which could vastly increase the range of products and services available: we can imagine that a lot of individuals and small businesses who do not have access to credit card payments will be able to offer their services and get paid.

minimax 13y ago

Bitcoin is the first Internet-wide payment system where transactions either happen with no fees or very low fees (down to fractions of pennies). Existing payment systems charge fees of around 2 percent to three percent As long as consumers are paid in their local currency and vendors pay their employees, their taxes, and their other costs in local currency, then bitcoin as a payment technology has similar costs as credit cards. Those costs are reflected through exchange fees and bid/offer spreads. Let's walk through a transaction. I want to buy something that costs 1 bitcoin. The going rate on the bitcoin exchange is $825 bid by $830 offered. I take my cash to the exchange and convert it to bitcoin. Assume exchange fees are .5%. To buy 1 bitcoin I pay $834.15 (fees included). I transfer the bitcoin to the vendor, who then does the reverse transaction. He recieves $820.875 (fees included). The cost for transaction was $13.275 (834.15 - 820.875) which comes out to 1.59%. That is cheaper than the oft quoted 2.5% rate for credit cards but is very much in the same ballpark. If you factor in that some credit cards give you 1% cash back then bitcoin and credit cards are back at basically even in terms of net transaction costs. With bitcoin as a payment technology, the transaction costs flow to the bitcoin exchanges, market makers, and dealers. A dealer is sort of like an exchange combined with a market maker. The dealer quotes you a price to buy or sell bitcoins and you transact directly (not on an exchange). The dealer, like a market maker, makes money on the bid/ask spread. The only reason I'm going on about this is because one of a16z's big bitcoin investments is in a company called Coinbase, which is a bitcoin dealer. When you buy or sell bitcoins with Coinbase, Coinbase always takes the other side of the transaction. They make money on the bid/ask spread, and in some cases ("instant exchange") they charge you a 1% fee on top. It's a pretty clever business. Just putting this out here so that everyone understands how the guys out there touting bitcoin for payments plan to make money from the people using bitcoin for payments.

msvan 13y ago
True, but the alternative vision is that we cut out the USD<->BTC exchange process entirely. For instance, I could get paid in BTC, then I go to Target and pay for their goods in BTC, whereafter they keep the BTC. But Andreessen Horowitz wouldn't like that, of course.
- 13y ago

billyhoffman 13y ago

Some variation of "no or very low fees" appears 5 times in this article. Marc is doing a good job (re)setting the expectation that transaction fees are not going away. a16z's bitcoin companies are just going to utterly gut the existing payment industry's 2.5%

timelincoln 13y ago

Beautiful

comex 13y ago

Future email systems and social networks could refuse to accept incoming messages unless they were accompanied with tiny amounts of Bitcoin – tiny enough to not matter to the sender, but large enough to deter spammers, who today can send uncounted billions of spam messages for free with impunity. Heh. Talk about historically backward: http://en.wikipedia.org/wiki/Hashcash#Bitcoin http://en.wikipedia.org/wiki/Hashcash#Bitcoin

SilasX 13y ago
I was thinking the same thing. If you want to impose costs on people who send you emails, you can just strip out the proof of work component of bitcoin (which indeed predated it), and use that as a challenge/response system.
- sirsar 13y ago
  Implemented in Bitmessage, with free anonymity on the side.

bluekite2000 13y ago

anyone has experience with remittance from US to countries that don't have a local bitcoin exchange? How would it work in such case since the receiver can't convert the money to the local currency?

oafitupa 13y ago
localbitcoins.com

kolev 13y ago

Bitcoin matters, but it won't survive "as is" ("thanks" to hoarders and speculators). It just brought attention to a problem, which will get solved more elegantly.

drcode 13y ago
Please let me know when web programming finally gets solved more elegantly, without the anachronistic ugliness of js/css/html.
- kolev 13y ago
  Many have tried, but people keep using what they are used to. Same with Bitcoin. People will keep using their convenient credit cards regardless if they are a superior or a subpar technology. Until Bitcoin diehards get this simple fact and quit spreading delusions that Bitcoin is replacing cash, credit cards, and Western Union, people will not take them seriously.
  - drcode 13y ago
    Centralized technologies: Compuserve, MasterCard. Decentralized technologies: The Internet, Bitcoin.
    - reqres 13y ago
      So you're saying both can work?
  - CamperBob2 13y ago
    Cash and credit cards, no, probably not. But if I were Western Union I'd be shitting bricks.

Guvante 13y ago

> The practical consequence of solving this problem is that Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate. But bitcoin doesn't do this at all. This is what makes Bitcoin amazing, but it doesn't solve this issue yet. Bitcoin is interesting since it is a minor revelation from providing this, but it seems incorrect to assert that this is the cool thing about Bitcoins right now.

vladd 13y ago
The reason I feel bitcoin is a scam is due to such misunderstandings. Bitcoin is not what makes any of this possible, the research happening for 20+ years in the background is. Bitcoin is just a marketing term, a specific implementation of those principles that derives its power just from the number of clients installed across the world with it. All the arguments that Andreessen gave are not Bitcoin's, but are rather characteristic for all altcoins out there. When you leave the research out, all you end up with is a term which denotes the first runner in a long-tailed race - http://coinmarketcap.com/ http://coinmarketcap.com/ . And when you compute the long-term value, being today's winner of the race in terms of marketing and clients user-base is totally different than the open-sourced research that happened and what Andreessen invoked. Fiat currency is sustained by our obligation to pay taxes in it and the legal tender notion that the law offers to it. Bitcoin is not offering such uniqueness, nor in the law nor by being the only system which provides the features involved in the article. It's only power comes from the specificity of its installed client-base, and anyone who sustains otherwise is either too less technical to notice the difference or comes close to border-line fraud to manipulate its interest in this bubble, at least in my book.
- kordless 13y ago
  I think it's safe to refer to most cryptocurrency methodologies as "Bitcoin" when talking to the masses. Making a casual relationship between misunderstandings of technology and a given implementation of it doesn't make a truth.

sigil 13y ago

Bitcoin is the first practical solution to a longstanding problem in computer science called the Byzantine Generals Problem. Wait, isn't Paxos arguably the first practical solution to BGP? [0] [1] It's been in production use at Google since at least 2006. [2] Furthermore, Paxos actually has a proof that timely consensus will be reached. Do we have the same level of rock-solid mathematical certainty about Bitcoin yet? The Eyal-Sirer paper [3] from late 2013 raised some concerns about a new mining strategy that might lower the attack threshold from 50% to 33%. Ed Felton's group at Princeton responded with some interesting analysis from game theory [4], but AFAIK there is no rigorous proof yet that the selfish mining equilibrium isn't a real threat. If Bitcoin is The Way of the Future (I hope it is), we need to be sure about these things. Hand-waving statements about how Bitcoin isn't vulnerable because no one has found an exploit yet [5] are ridiculous and dangerous. [0] http://en.wikipedia.org/wiki/Paxos_(computer_science)#Byzantine_Paxos http://en.wikipedia.org/wiki/Paxos_(computer_science)#Byzant... [1] http://read.seas.harvard.edu/~kohler/class/08w-dsi/mazieres07paxos.pdf http://read.seas.harvard.edu/~kohler/class/08w-dsi/mazieres0... [2] http://research.google.com/archive/chubby.html http://research.google.com/archive/chubby.html [3] http://arxiv.org/pdf/1311.0243v2.pdf http://arxiv.org/pdf/1311.0243v2.pdf [4] https://freedom-to-tinker.com/blog/felten/bitcoin-isnt-so-broken-after-all/ https://freedom-to-tinker.com/blog/felten/bitcoin-isnt-so-br... [5] https://twitter.com/cdixon/status/412447615331360768 https://twitter.com/cdixon/status/412447615331360768

hendzen 13y ago
No, Paxos is not a solution to BGP. Paxos explicitly does not consider malicious processes. EDIT: fixed typo
- sigil 13y ago
  Paxos is Byzantine Fault Tolerant. A malicious node is a special case of failed node. "The objective of Byzantine fault tolerance is to be able to defend against Byzantine failures, in which components of a system fail in arbitrary ways (i.e., not just by stopping or crashing but by processing requests incorrectly, corrupting their local state, and/or producing incorrect or inconsistent outputs)." http://en.wikipedia.org/wiki/Byzantine_fault_tolerance http://en.wikipedia.org/wiki/Byzantine_fault_tolerance

riemannzeta 13y ago

Bitcoin is a digital bearer instrument. It is a way to exchange money or assets between parties with no pre-existing trust: A string of numbers is sent over email or text message in the simplest case. The sender doesn’t need to know or trust the receiver or vice versa. Related, there are no chargebacks – this is the part that is literally like cash – if you have the money or the asset, you can pay with it; if you don’t, you can’t. This is brand new. This has never existed in digital form before. Doesn't this reveal the flaw in the "Bitcoin is the solution to the Byzantine Generals' Problem" argument? My understanding is that the bulk of transactions costs associated with most payment systems is associated with chargebacks. Some result from fraud by the payer and some by the payee. Regardless, a digital bearer instrument doesn't eliminate these failure modes; it simply avoids them entirely. If the BGP is about solving the problem of fraud, then Bitcoin hasn't solved it. It's simply avoided it.

eurleif 13y ago
>If the BGP is about solving the problem of fraud, then Bitcoin hasn't solved it. Do you have any idea what the BGP is?
- riemannzeta 13y ago
  I'm not an expert, but I read the paper. So you don't need an intermediary to confirm that a particular digital transaction took place between two people. By analogy to the original problem as stated, that's like saying you don't need an intermediary to confirm that a message with particular content was delivered between two generals. You still need an intermediary to confirm that the recipient is going to act on it as intended. And I believe the history of Silk Road and its would be successors is evidence that an intermediary is still required post-Bitcoin. So you don't have to worry about the money not being there. You still need an escrow agent. http://www.nytimes.com/2014/01/19/business/eagle-scout-idealist-drug-trafficker.html http://www.nytimes.com/2014/01/19/business/eagle-scout-ideal...
  - eurleif 13y ago
    >By analogy to the original problem as stated, that's like saying you don't need an intermediary to confirm that a message with particular content was delivered between two generals. No, that's not analogous. Bitcoin prevents double-spending. It doesn't just deliver messages. You're talking about a whole other level of cooperation. It's true that Bitcoin doesn't guarantee that, but no one said it did, and that doesn't imply it doesn't really solve BGP. Bitcoin does have a built-in feature, multisig transactions, that makes a more-trustworthy form of escrow possible.

asciimo 13y ago

I'm a Bitcoin believer but I feel a little embarrassed after reading this. I'm impressed that Marc Andreessen can get an entire Dealbook page to advertise a pet technology without any fact checking. (Is that the point of Dealbook? I almost never read it.) > Even Netflix, a completely virtual service, is only available in about 40 countries. The implication is that mere payment logistics are inhibiting Netflix's internationalization. What about copyright and regional distribution restrictions? > Ben S. Bernanke, formerly Federal Reserve chairman, recently wrote that digital currencies like Bitcoin “may hold long-term promise, particularly if they promote a faster, more secure and more efficient payment system.” Bernanke never said this (http://imaginarymarkets.com/reddit-corrects-bitcoin-quotes-and-provides-more-quotes-with-sources/ http://imaginarymarkets.com/reddit-corrects-bitcoin-quotes-a...), and it's tacky to perpetuate this falsehood. > But I hope that I have given you a sense of the enormous promise of Bitcoin. Indeed, he succeeded here, though a little too breathlessly.

oafitupa 13y ago
> What about copyright and regional distribution restrictions? Sounds like the kind of problems centralized services always run into.
marcamillion 13y ago
> Bernanke never said this (http://imaginarymarkets.com/reddit-corrects-bitcoin-quotes-a... http://imaginarymarkets.com/reddit-corrects-bitcoin-quotes-a...), and it's tacky to perpetuate this falsehood. I don't understand this. He did say it....here is the paragraph in it's entirety from his address to the Senate: Historically, virtual currencies have been viewed as a form of “electronic money” or area of payment system technology that has been evolving over the past 20 years. Over time, these types of innovations have received attention from Congress as well as U.S. regulators. For example, in 1995, the U.S. House of Representatives held hearings on “the future of money” at which early versions of virtual currencies and other innovations were discussed. Vice Chairman Alan Blinder’s testimony at that time made the key point that while these types of innovations may pose risks related to law enforcement and supervisory matters, there are also areas in which they may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system. He was using Vice Chairman Alan Blinder's testimony to prove the point that while those innovations may pose risks there are areas which they may hold long-term promise. So not sure what you mean by he didn't say that. Marc's original statement is indeed accurate, per the transcript of Bernanke's speech. [1] [1] - http://qz.com/148399/ben-bernanke-bitcoin-may-hold-long-term-promise/ http://qz.com/148399/ben-bernanke-bitcoin-may-hold-long-term...

nether 13y ago

Remember when everyone said bitcoin was doomed because it's deflationary?

base698 13y ago
That's only people that read the 101 level of how the economy works and don't consider that bitcoin is infinitely divisible practically, unlike gold.
- reqres 13y ago
  Unless you're saying that you can split 1 bitcoin into 2 bitcoins, I think your reasoning is flawed. Or looking at it another way, inventing a new denomination like a millicent (= 0.001c) will automatically increase our money supply...
  - base698 13y ago
    So with our currency if it becomes wildly deflationary with a single penny buying a car--how do you buy a cup of coffee? That is the practical problem with deflation. With bitcoin it can always be made smaller.
    - reqres 13y ago
      Governments can always invent a new denomination. Mostly its been in the other direction (take off orders of magnitude) But the scenario you're citing isn't the central issue when it comes to deflation. Deflation leads to a negative spiral because it pays off to defer any kind of spending - thereby slamming on the economic brakes. Notable example is Japan in 90s - deflation has been a major factor in its meagre growth then and even into the 2000s. The BoJ's unwillingness to adopt a sufficiently expansionary monetary policy likely exacerbated the problem
- Crito 13y ago
  I'd say that gold is infinitely divisible in practice, as much or moreso than bitcoin. There is what, a USD dollar or two worth of gold leaf in Goldschläger? You can trivially get down to flakes of gold worth fractions of pennies. The only problem is the cost of division (making leaf is somewhat labor intensive, but not prohibitively so by any stretch). The hard limit is $1e-20, according to wolfram alpha. IIRC bitcoin will only get you down to e-8.

chris123 13y ago

The crypto currency market = "winner take all" market ("all" >= 80%). That said, if the capital costs (mostly mining hardware) and operating costs (mostly electricity, with some rent and labor) leave room for a low-cost producer to enter the market (and the switching costs are not too high). Time will tell. Evolution will do its magic and the fittest will survive (at least until the wheel turns round again). Regardless of who "wins," crypto-currency-based disruptors are a comin' to a status quo near you. And that's a good thing.

deegles 13y ago

Aren't transaction costs being "paid for" by all those people running mining rigs? All that processing power used to confirm your transaction cost someone real money. Transaction fees ostensibly pay for this, but I haven't seen anyone do the math on how much to charge to make transactions break even. As the difficulty gets higher and higher, miners will have to rely on these fees to make any profit. As a side note, is it possible to build mining rigs optimized for transactions vs. mining? or is that the same job?

lostsock 13y ago
It's the same job. The way that transactions are processed is that they are included in the block that is mined. At the moment there is an extra 25 BTC reward for mining a block in addition to the transaction fees of those transactions you have included but over time this extra reward will diminish to 0.

lectrick 13y ago

The best lesson Bitcoin taught me is that the currencies we grew up with are just a shared illusion.

jude- 13y ago
How so? Currencies are only an abstraction layer on top of goods and services. Instead of directly trading my goods and services for yours, we use a currency--a common "interface" for doing so. The currency doesn't have intrinsic value; the reason it has value at all is because you can exchange it for a wide variety of goods and services. That's why people want dollars, but not Monopoly money.
- lectrick 13y ago
  > The currency doesn't have intrinsic value; That is the #1 criticism of Bitcoin. Which means it's a meaningless criticism.
  - hashmap 13y ago
    It isn't though - it's a way to illustrate Bitcoin's usefulness as a currency as "worse than gold." I'd put bitcoin's inherently deflationary nature, inability to perform chargebacks, vulnerability to selfish mining, incentivizing the waste of electricity, or a myriad of its other problems far higher on the list than the fact that it has no intrinsic value. Outside the above argument, its lack of intrinsic value isn't that common a criticism, nor is it really relevant.

panabee 13y ago

this may be a stupid question, but how does the cap of 21 million coins affect bitcoin? does it not matter because each bitcoin is infinitely divisible?

sirsar 13y ago
Divisible to 8 decimal places. There are thus 2 quadrillion atomic units.

judk 13y ago

I wish Will Satire would explain the etymology of "Why X Matters"