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Bitcoin Encryption Government Privacy The Almighty Buck

Amir Taaki Answers Your Questions About Bitcoin 262

Posted by timothy
from the conspiracy-theorists-in-three-two-one-go dept.
Last week, you asked questions (many rather pointed!) of Amir Taaki, co-founder of Bitcoin Consultancy, which develops Bitcoin related services, exchanges and Bitcoin itself. (They also own Says Taaki: "When creating video games I spent much time imagining tools to make artists lives easier, and how we could keep funding developers to write free software. One contribution of mine to the community was a site where developers could get funded for developing features and I'd love nothing more than to pay people to write free software." With regard to Bitcoin, similarly, "We need fulltime developers thinking about the problems and solutions needed to keep this system running. We aim to get all the creative thinkers from the community and provide a mechanism for enabling their work." Below find his answers to the questions readers raised.

Is the gold rush over?
by curunir

With BitCoin limited to a pre-determined amount and the difficulty of mining new BitCoins, it seems that this gives a huge advantage to people who got into BitCoin early and have already amassed a considerable amount of BitCoins. Is this true and, if so, do you think this disincentive will undermine BitCoin's ability to become more popular since the majority of the population will have to work so much harder to obtain the currency?

Amir Taaki: It is certainly true that early adopters have been rewarded. I do not think these inequities will be more shocking than those in the real world. Any guesses as to how this will play out is pontification. However, I don't think anyone has proposed a working model for a decentralized secure digital currency where such a thing would not happen. Overall, I believe the properties of this currency will significantly add to the wealth of all peoples, especially those less well off.

by conner_bw

I argue that bitcoin is interesting because it's a locked currency, with a known maximum, and a timeline for that maximum based on contemporary crypto math and radical ideas. There is clearly well thought out timeline for adoption and disruption. It's not just "Cool, new money!" Are you a crypto anarchist, or similar?

A.T.: Yes, I myself am a crypto anarchist. However, not everyone on my team has the same political ideologies and we do not try to push our ideologies on each other. In fact, we have all seen our ideologies change over time with the awareness of new knowledge and information. Ideologies should not be a point of contention, especially when we all see the immense prolific value of a more efficient means of commerce.

If not, then is this another Tulip craze [] and all these news stories and bitcoin currency exchange services being hyped heavily the last month machinations for profiteering?

A.T.: I do not advocate that people speculate on bitcoins. In fact I actively advocate against that because those who are new to bitcoin might see it as just that, a 'craze.' I do however think that the properties of bitcoin are clearly advantageous over the current means of commerce. Although bitcoin is still underdeveloped, everything visible in the modern world can be adapted using bitcoins as a backbone. This will result in all the services of today's world (clearing houses, security, fraud protection, interest bearing accounts...) continuing to be offered, but with far less overhead.

Austrian Acceptance
by MyFirstNameIsPaul

I have found that the Austrians have a hard time accepting the idea of a digital currency. The core of their argument seems to be that digital currencies are not made up of something that had value before being a medium of exchange, such as gold and silver. When I counter to them that BitCoin is made up of code and people pay money for things like video games, they argue that the video game would have to be the thing valued, not the computer code. How do you deal with these kinds of objections?

A.T.: Gold is not a currency in my mind. It is a store of value. I would not want to go to buy bread from my local store and shave off some gold from a bullion and take out a scale and wait for an acid test to be performed. Gold is backed by real world properties.

Bitcoin is backed by the fact that is has unique properties as well:
  • Decentralized
  • No bank holidays
  • International
  • No concept of borders
  • Divisible
  • True micro-transactions possible (new markets feasible)
  • New privacy model
  • Private identity yet transparent
  • Secure
  • You do not have to trust merchant sites (Sony - Playstation) to protect your data
  • Fast Transactions
  • No Charge backs

Useful Calculations?
by Bodhammer

Is there any way to make the calculations more useful (i.e. Boinc) and still maintain the same level of difficulty in the computations? It just seems so wasteful to run Bitcoin at this time.

A.T.: Our world's current infrastructure depends on paying employees, building large buildings, paying for heat, electricity, transportation, lawyers, courts, judges, policemen, government bureaucracies, armies and much more. Doesn't it seem wasteful to rely on tedious and sometimes ambiguous real world laws with a lot of overhead instead of mathematical laws?

When merchants started accepting bitcoins, verifiers (because miners is a misnomer) started to see that their generated coins were worth something. They became competitive and found ways to do the same calculations cheaper which provided security for the network and verified the transactions. Verifiers found out that running these hashing algorithms on one's GPU was far more energy efficient than running them on one's CPU. Specialized software was later constructed for these purposes. Some keep their machines under dry ice. In the not so distant future, hardware FPGAs will be specially designed for this verification process.

The advantages of bitcoin exist because it is an inherently more efficient and less wasteful system. The reward for minting a block, provides a healthy competition that causes the energy cost to be driven down.

Additional privacy layers and smartphones?
by DriedClexler

Is there any serious development underway to make the privacy more robust? There has been talk of "Bitcoin laundry," where large pools swap their coins around between each other to make it harder to connect a coin/address with an owner. But for this to seriously work, it needs a lot more people to be involved in it, and it has to be integrated in a way that's secure (against someone just keeping coins in the middle of a shuffle) and transparent to the user (so they don't have to think about the new addresses they generate, or which coins are optimal to send where for the maximum shuffle). How soon can we expect something like this? Also, how soon will smartphones be able to handle this with the same ease as desktops and notebooks?

A.T.: A bitcoin laundry already exists. The volume on it is very low, but if demand increases in the future then such a service is trivial to setup. A mixing service (as they're called) requires a large volume and therefore a persistent demand.

Smartphones can already use bitcoin :) An Android version of the command line Bitcoin was compiled. Additionally one can use an online wallet service (or a bitcoin exchange) to store their bitcoins.

Lost/forgotten bitcoins?
by algorimancer

One thing that concerns me is the fixed maximum number of bitcoins. Lets say people acquire bitcoins, but the amount isn't enough to worry about, so they never use them, or perhaps their computer crashes and they don't have a backup. My understanding is that these bitcoins are permanently lost from the economy of bitcoins. Over time, the total supply would begin to dwindle, presumably pushing up the value of those that remain, until people become frustrated at the small supply and are motivated to move to a new system, then bitcoin is abandoned. In the real world this happens with dollar bills, but the government can compensate for this by creating more. Is this issue addressed in some fashion?

A.T.: The supply of bitcoins is 21 million. The supply of money is infinite. A bitcoin can currently be divided to 8 decimal places. The loss of bitcoins in the future may lead to some deflation however I expect it to be insignificant. In the very long term, even if there was only 1 bitcoin theoretically in circulation, running the world economy would not be a problem. There exists only 6 MBTC in circulation at this moment.

Extreme instability of Bitcoin vs. USD
by Limerent Oil

Why would any merchant IN THEIR RIGHT MIND want to deal with Bitcoin? With the insane USD-to-Bitcoin exchange-rate gyrations happening lately, why would any serious retailer even bother, when the value of Bitcoin vs. USD could change by 50% or more in just a few hours?

A.T.: As liquidity increases transaction costs decrease. If there was already an appropriate clearing house in place, a merchant would be able to automatically accept bitcoins and liquidate them to dollars. In the same way that people who use the internet are not all cognizant of the communication protocols they are using, I foresee the possibility of merchants offering their products in USD, EUR, GBP, and customers purchasing those products in their local currency. And the underlying mechanism which facilitates this transfer is the bitcoin. Bitcoin would provide these same services that payment services, credit cards or banks do but with much less cost to the merchant and customer.

What about the lack of inflation?
by Cyberax

It's long known that economic growth is severely stunted without some measure of inflation. Adopting bitcoins for the global economy would mean that policymakers lose control on money supply, and while there are advantages in this, disadvantages far outweigh them. Additionally, adopting a global currency standard will deny governments ability to influence currency rates robbing them of yet another way to control the economy. Is there any plan to solve this? Maybe a system of independent bitcoin 'roots' operated by governments would help?

A.T.: Ben Friedman has released a lot of work on E money and how it will affect the future and how governments will adapt. The truth is that the government will still have monopolies on much of the operations of the economy such as fractional reserve banking and the issuing of licenses which allow banks to lend money.

by slim

What are your aspirations for the currency? Do you hope for it to be near-ubiquitous — used by corner shops and mainstream merchants like Amazon? Or are you happy to see a parallel economy grow, as a niche thing? Or something else?

A.T.: I have lofty dreams of a world where people can send money abroad without having to pay 20+% in many cases to rip offs like western union. Where people can raise funds through services like paypal but not have their accounts arbitrarily frozen. Where citizens in developing nations who already oppose their government do not have to pay for wars of genocide out of their own pockets as was the case in ex-Yugoslavia where authoritarian control over the money supply helped finance a terrible war and bring about the worst hyper-inflation in Europe since WWII.

Bitcoin in some form is going to be adopted whether it is used as a unique currency, a payment system or as a clearing house. Our aspiration for bitcoin is to provide competition to the current system making everything cheaper for all. It's about cutting the middleman, democratising money and handing back power to people.

Will governments let it survive?
by merdaccia

We live in a world where the supply and movement of money are controlled by governments, central banks, money laundering laws, and financial institutions. How can BitCoin survive in this world? Middle men like banks stand to lose a fortune in fees and exchange rates, governments stand to lose a fortune in taxes if they can't track money movement, and the black market stands to gain a silent way to move value. For BitCoin to gain adoption, some major retailers need to start supporting it, but given the above risks, what stops a government from telling companies in its jurisdiction that they can't accept it?

A.T.: The US is not the world. If their government forces everyone to continue to use typewriters in lieu of computers and pay through the nose, they can. New and better technology, especially when it is revolutionary, does threaten archaic models and practices. Hopefully there will not be contention. My team is already in contact with SWIFT which has operated for 30 years and is the backbone of international money transfer for over 9000 banks. Many forward thinkers see the advantages of bitcoins but it is easy to understand how those perhaps well-intentioned but not well-versed in what bitcoin is can promote FUD.

Regulatory compliance?
by molo

For those of us interested in developing financial services using bitcoin, how have you dealt with regulatory issues? It seems like the SEC and FINRA in the US would not be keen on unregistered broker-dealers and agents and owners not having the legally required Series 7 and Series 24 certifications. Have you sought the UK equivalent certifications? The requirements of lawyers, accountants, certifications etc. seem to put a very high capital cost on starting a legitimate business offering services in this space.

A.T.: As well as being a developer, I own and operate (the UK exchange site). My team has been in negotiations for a long time now with lawyers and regulators. There is no regulatory process or restrictions now on the running of such services. Non-regulated sectors rarely seek out regulation. However, when it comes to bitcoins, I believe the sooner they are regulated the better. If their regulation is pushed by those who understand what bitcoins are then we may be able to regulate them in the best way possible and show the world they were not created for illegal practices. The sooner they are regulated, the sooner users can have legal assurances that merchants are liable for their operations. The negligence seen at MTGox would never have happened in a regulated market.

Although the FSA have not made any official statement about bitcoins. We at are hoping that we can show to the proper authorities that indeed we have recorded our history of transactions. That all the money in our users accounts is accounted for. This process would dispel the FUD surrounding bitcoins and allow the people of the world to enjoy the freedoms and wealth of bitcoins that much sooner.

Tax avoidance and illicit trading
by slim

Some "benefits" of Bitcoin, from one perspective, appear to be that its cash-like properties lend themselves to tax avoidance (making transactions without declaring them), illicit trading (e.g. drugs or prostitution) and money laundering. Do you view this as a positive, a negative, or neutral? If you view it as a problem, how can the problem be mitigated?

A.T.: Most new technologies can be used for good and bad. Of course I do not condone or agree with the use of Bitcoins for illegal purposes.

However, I really want people to understand one thing. The criminalization of Bitcoin would not stop the illegal activity that surrounds it. In fact, it would help those who use it as a means of engaging in illegal activity by not regulating the purchasing and selling of bitcoins. Criminalization would only stop people from enjoying the tremendous and fruitful benefits of such a system, it would hinder the social good. Regulation would allow the proper authorities to find and charge those who use bitcoins for illegal activities. has kept a clear record of the exchanges which have gone on. Every single transaction is recorded and we are happy to open our books to the proper authorities. We are aggressively advocating and promoting the legalization and regulation of the exchanges.

Bitcoins offer massive potential for positive social change. It would be a sad thing to see Bitcoins outlawed due to ignorance or reactionary feelings. If you outlaw Bitcoin then the illicit trades will still continue, perhaps even proliferate, but the good would disappear.

Kings used to raise capital in order to wage wars. They required popular support before they were able to fund their wars. A common tool in modern day authoritarian regimes is currency manipulation in order to fund their wars of genocide (e.g Milosevic in the 90s). Bitcoin democratises governments.

Quantum Computing?
by SanityInAnarchy

Are there plans to deal with quantum computing, or with any of the algorithms used being compromised?

A.T.: If SHA256 or ECDSA was ever cracked, we'd have far bigger problems to worry about than bitcoin being destroyed. I suspect that there won't be any overnight switch, giving everybody enough time in order to adjust the current system to any changes.

The internet wasn't built perfect. But years of reshaping/patching/incremental design have shaped it into a workable network. Bitcoin will too undergo this transformation with time as it ages.

(More from the call for questions:)

is there ever going to be a bitcoin bank? ... The idea that if you lose or destroy or whatever your computer and lose all your money isn't going to make the general public accept this.

A.T.: Bitcoin now stands at its early stages. It's the kernel of the software stack that will eventually exist for this financial system. Other services and software utilising Bitcoin will exist. A common view is where Bitcoin acts as an automated clearing house between all these user facing services in the future.

Bitcoin's protocol itself will need to be extended in order for it to grow. As the network expands, block sizes could become impossible large once it rivals the transaction volume of a comparable service like VISA or Paypal. To have lightweight clients that don't need to process these large GB sized blocks new protocol commands like a txmatch regex would need to be introduced in order that clients don't need to process the entire block data.

The point to Bitcoin is that you can choose your own level of trust in an external service. One of our group's members, Patrick Strateman, came up with a scheme whereby a wallet could be recovered algorithmically using an email and a password. In the future I expect savings accounts where retrieving the money is an arduous proccess. Then we can go further to where a person has all their funds in a trusted service like with email today- how many people run their own mail servers?

What markets do you think will be the first to most aggressively adopt bitcoins as their currency?

What insights can you offer as to why the US government is having a hostile reaction to bitcoins?"

What kinds of competing P2P currencies are in development, and how will their deployment affect the valuation of bitcoins?

A.T.: Immediately as liquidity improves in exchanges, the best use for Bitcoins will be individuals transferring funds between countries without fees. Our group has a lot of interest from mobile sectors because of the potential as a micropayment system. Currently now in Africa, people use mobile credit as a form of currency to transfer funds across borders, but that's usually less than ideal.

The US government isn't a homogenous entity, and one senator (possibly funded by bankers) made a false claim on Bitcoin- calling it a scheme for drug trafficking networks. It may simply be due to reactionary misunderstanding like the people in Yahoo Finance calling Bitcoin a Ponzi scheme invented by bankers. That's why our group is aggressively pursuing press in order to dispel these myths.


If we eventually use Bitcoin in everyday life, say, in the supermarket, how will we deal with prices in fractions of a Bitcoin? What terminology might we use for something priced at 0.00000005 Bitcoins?

A.T.: The accepted 'standard' is to use SI prefixes. 0.005 BC would be 5 mBC.

Here come the regulators ...

How will your business change when countries regulate exchanges? How do you ensure your exchange isn't being used for illicit purposes (to avoid being shut down by government authorities)?

A.T.: It is our goal (and has been for months) to get legal legitimisation. Our organisation has been aggressively seeking FSA regulation here in the UK for Britcoin. Our hope is that when governments do come to look at Bitcoin, they will see a long running, honest, legal exchange with open books. By having something in the law books about Bitcoin, it sets a positive legal precedent in the future and puts us as the policy makers rather than a bunch of old 60 year banker types.

Our exchange complies with the UK Know Your Customer laws which ensures it's not being used for illicit activity. We keep detailed transaction records and run regular audit logs to look for missing funds.

But eventually, one would want to use BitCoins to pay for legal services. My question is; how do you get to that point? Why would a legitimate business accept a currency that is used almost exclusively for illegal means? What is the strategy to convince mainstream businesses that BitCoins have a purpose in the main web, as well?

A.T.: The illicit markets are a very small part of Bitcoin yet the most sensationalist. I can see how one would think Bitcoin is purely for illegal trade if I didn't know better.

Check out the list of merchants.

Full and open disclosure: how many bitcoins do you currently own?

A.T.: 32 BC. At one point I had 6000, but I'm a bad hoarder. Everytime Bitcoins would double (and I'd have $2k), I'd donate half my wealth to other free software developers. Then recently I was going to wait until I had $4k, but the price went down and I'm very bad at holding onto cash :)

But that doesn't bother me at all. We have our group of free software developers developing Bitcoin itself and other related projects. Funds are coming in and we're growing. The goal is to this as a sustainable operation paying developers working on Bitcoin fulltime.

What are the advantages of bitcoin?

One problem I see with bitcoin is it offers very little over what we currently have. If I want to perform an online transaction using my computer, unless I am buying something illegal, then there are already companies which offer products for me to use. If I want to make an anonymous purchase in person, I would easily use cash.

Bitcoin seems to suffer from a lack of portability, which makes me wonder, what "need" is bitcoin catering to? What do I do in my day-to-day life that bitcoin will help me do such that as some point, bitcoin becomes irreplaceable and achieves de facto permanency?

A.T.: Sending funds abroad is time consuming, expensive and difficult. Recently I tried sending funds to a Polish bank from the UK- the bank was closed and I waited until Monday. Requiring me to be in person at the bank, the woman was unable to enter the Polish L looking character into her terminal. I had to aquire an internet banking code to do it online. Waited 3 days, logged in and the internet banking form didn't work. In the end, I ended using a friend to aquire Bitcoins and use the Polish exchange bitomat (we never use Britcoin ourself).

I wanted to donate funds to the excellent Symphony of Science musician. I went to fill in the Paypal form, spent 10 mins signing up to an account, entering all my very personal details and my card was rejected. In the end I got him to accept Bitcoins and donated directly without paying fees to Paypal.

Sony recently was hacked. Millions of accounts were leaked. If they were using Bitcoins then the addresses people donated to would be known to the attacker. Not my private keys which enable said attacker to spend my cash.

With commerce, everything becomes cheaper. Bitcoin vastly reduces the overhead needed for fees. We no longer require staff sitting inside banks pressing numbers on a keyboard since the system is automatically backed by mathematics and cryptography, not laws and people.

This discussion has been archived. No new comments can be posted.

Amir Taaki Answers Your Questions About Bitcoin

Comments Filter:
  • Re:+1 Comedy Gold (Score:4, Insightful)

    by David Gerard (12369) <`ku.oc.draregdivad' `ta' `todhsals'> on Wednesday June 22, 2011 @02:27PM (#36533394) Homepage

    I am amazed it took this long for someone to work out a way to mine and exploit unexamined privilege as a resource.

  • by David Gerard (12369) <`ku.oc.draregdivad' `ta' `todhsals'> on Wednesday June 22, 2011 @02:32PM (#36533452) Homepage

    USD are also a lot more popular. This is actually important: there's 300 million people who will do work for you if you offer them a certain quantity of pieces of paper called "US dollars".

  • by Beelzebud (1361137) on Wednesday June 22, 2011 @02:42PM (#36533580)
    A bank will convert euros to dollars. I don't know of any bank I can convert from bitcoin to dollars, thus, to me it's worthless. No one would claim the Euro is worthless because it's backed by the European Union. What exactly backs bitcoin besides "Some guy" in an IRC channel?
  • by Hazel Bergeron (2015538) on Wednesday June 22, 2011 @02:47PM (#36533678) Journal

    working below minimum wage on free software

    Working below minimum wage is when you have to go out and get a job to survive and you're so desperate that you take something below what even the state considers reasonable for your survival. Choosing to spend time on free software projects voluntarily because they happen to interest you is not "working below minimum wage" - it's a hobby.

    my writings on Wikipedia about building a better future for all

    Wikipedia is the ultimate Objectivist dystopia. And Wales may be a slimy embezzler but at least he doesn't deny his admiration for Rand, so you can't plead ignorance.

    You're acting like politicians who smear there enemies by pointing at anyone they dislike and shouting 'TERRORISTS!'

    That's only bad when "terrorist" isn't well-defined or when the target doesn't fit the definition. But when a group of people act as self-righteous Ayn Rand-reading nerds then it's perfectly acceptable to call them self-righteous Ayn Rand-reading nerds.

    We're all very diverse in the Bitcoin community,

    Why is it that every single oddball group uses the defence, "We're all very diverse"? You're as diverse as any group of people who think bitcoin is a good idea can be - and that's not very diverse.

    but we recognise the potential of this currency how others recognise the potential of something like Esperanto or Linux.

    Adoption of Esperanto was an interesting idea for cross-border communication which evolved into... everyone speaking English. Linux is and always was a pragmatic operating system project based on a Free software licence which has resulted in a very usable operating system. Bitcoin has... no redeeming feature whatever. It's not untraceable; it's not secure (unless you regard users' machines as less crackable than a bank's); it's not scaleable... so what is it, apart from a get-rich-quick scheme for its founders?

    Your Ad Homineum attacks on our personalities are counter-productive for any kind of sensible debate about the merits of this system.

    It is very important, in studying any human system, to examine the personalities of its leaders. It would be irrelevant ad hominem to dismiss you because you are, say, fat or Asian or whatever. But to consider bitcoin's political culture is entirely appropriate.

  • Re:Jesus (Score:4, Insightful)

    by Americano (920576) on Wednesday June 22, 2011 @03:10PM (#36534020)

    History is littered with the detritus of "inevitable ideas whose time has come" that weren't inevitable, and whose time hadn't come.

    Is this type of system inevitable? No, I don't think so. In fact I think it has a lot of things actively working against it, not the least of which is the simple fact that it'll be hard for the government to trace, tax, and control this new currency, and the government is the only one with the guns and laws to enforce adoption of a fiat currency, so you've just alienated the very organization whose support you desperately need to be able to break out of the small niche you're occupying.

    Do I really, really think this is not going to happen in my lifetime? There will always be naive simpletons willing to buy into the delusion that this sort of thing will catch on "any day now." I don't think that means that this is going to happen in my lifetime.

    A steady drumbeat of articles flogging this pyramid scam is not "expressing a general interest," it's beating a dead horse.

  • by Smidge204 (605297) on Wednesday June 22, 2011 @03:18PM (#36534144) Journal

    Our world's current infrastructure depends on paying employees, building large buildings, paying for heat, electricity, transportation, lawyers, courts, judges, policemen, government bureaucracies, armies and much more. Doesn't it seem wasteful to rely on tedious and sometimes ambiguous real world laws with a lot of overhead instead of mathematical laws?

    So let me get this straight - to pay people for doing productive things, like the physical labor to build and maintain the infrastructure bitcoins implicitly rely on - electrical power being among the most trivial when you think about it - is wasteful?

    News flash dickhead - unless you've growing your own food with handmade tools and living in a hut you build yourself from materials you gathered yourself, you are sitting near the top of a MASSIVE pyramid of laborers, designers, artisans and technicians. All your "success" comes at a price of tens of thousands of other individuals doing their job. You just called all that wasteful.

    Hell, the computer he's using probably has a hundred thousand sets of fingerprints on it - from the guy who dug the earth for the raw materials to the guy who dropped the box on his doorstep (because fuck knows he probably never leaves the house, which itself took a small army to make possible).

  • by ArsonSmith (13997) on Wednesday June 22, 2011 @04:04PM (#36534792) Journal

    Math, Cryptography, Economics???

    All nerd based things wrapped into one item.

  • by Anonymous Coward on Wednesday June 22, 2011 @04:09PM (#36534864)

    Compare BTC to US Dollars, which likewise have "nothing of real substance". The big difference I can see is that one can pay tax in USD.


    Don't get me wrong, I think this BC thing is worthless and it is only a matter of time (and not too much) before it fails. And if it were to fail, issues like having a maximum limit of currency issued is a BAD (in capital letters) idea.

    Having said that, the value of US $ is (almost) unrelated to taxes. If it was only useful for taxes, you would work just enough to have US $ for the taxes and then spend two-thirds/half the year in holiday. Hey, if you didn't work at all you wouldn't earn money and you would not have to pay taxes, then!

    The US $ is useful to pay for goods and services from people who want US $. Period. In most countries (probably the USA too), you cannot sell anything if it has not a price in the national currency (you can accept foreign currency if you want to, but you are forced to accept the national currency). And even if legally you are not forced to do so, you'll need US $ for living there and buying the goods and services you need for your bussiness, so in the end you will need US $, you will want US $ and US $ will have a value to you.

    In USA, UK pounds or EU euro notes have still value. Why? Because it is known that UK/EU produces things of value that can be exchanged for these notes. Even if you are not interested in these things, it will not be difficult to find someone who is, either directly or through a bank. Since the correlation between the amount us US$ in circulation, EU € in circulation, goods produced in USA and goods produced in EU is somewhat stable, you can relationship in its value can be stablished, and you can say x EU € = y US $.

    The trouble with bitcoins is that knowing what can be purchased with bitcoins is little, not very known and probably unstable. To add to that, I doubt there is a single item that can be purchased with BC but cannot be purchased with US $ / € / Pound, whatever. So, the value of BC is based only in the public perception without any production base behind. The moment there is any doubt, the offers for goods in BC will disappear or show a drastically worse exchange rate, and exchanging BC for US $ will worse every day. Finally, a couple hundreds of investors will end with all the BC in the world but nobody will give them a cent for those.

  • Re:Jesus (Score:5, Insightful)

    by Americano (920576) on Wednesday June 22, 2011 @04:45PM (#36535322)

    The major difference is that credit cards and the computerization of banking didn't "replace" any currencies, they simply eased the circulation of standard fiat currencies around from bank to bank and account to account. They digitized the existing system, in other words.

    There are *very* few use cases where Bitcoin offers substantial benefits above and beyond using something like a credit card, and most of those use cases are directly antagonistic to the governments and regulatory bodies who would need to embrace bitcoin to make it a truly viable standard beyond the niche market it currently occupies. Of the list of strengths Mr. Taaki cited, the only ones truly unique to Bitcoin (that could NOT be implemented in our current system) are the decentralization and privacy offered - both of which do nothing to entice a centralized regulatory body charged with overseeing, taxing, and monitoring the system to accomplish those goals, and in fact actively work against their accomplishment of those goals.

    I'd also say that you could make a pretty solid argument that the majority of people who are buying into the Bitcoin hype at this point are the paranoid & the criminal (for whom a decentralized, anonymous transaction mechanism is appealing), or the excessively-nerdy folks with very fast computer rigs (who dream of making millions on something which bears all the hallmarks of a pyramid scheme).

  • by CharlesDonHall (214468) on Wednesday June 22, 2011 @04:55PM (#36535450)

    It's not worthless in the sense that you can't find a sucker to sell it to today. It's worthless in the sense that eventually the supply of suckers will run out, and you're running the risk of getting stuck with bitcoins that have no other value. (Of course the same thing can happen with national currencies...but if it does, it means that the nation that issued the currency has collapsed, and if you're a resident of that country then you've got bigger things to worry about. Even a solid gold-based currency might not be tradeable for food or medicine or weapons.)

    It helps if you notice that it's like every other pump-and-dump scheme:

    Con Artist 1: I'll buy a bitcoin from you for $1.
    Con Artist 2: OK, here it is. Actually, I think I'll buy it back from you for $2!
    Con Artist 1: OK, here it is. Will you sell it back to me for $4?
    Con Artist 2: Absolutely!
    Victim: Wow, the value of bitcoins has quadrupled in the past few minutes! They seem like a wise investment! Can I get in on the action?
    Con Artist 1: Sure! In fact, I'll sell you as many bitcoins as you want for only $3.50 each. That's below the market rate.
    Victim: What a bargain! I'll take a thousand!
    Con Artist 1: Done!
    Victim: So, who wants to buy bitcoins? The bidding starts at $8 each!
    Con Artists 1 & 2: My, my, look at the time! We must be going!

  • Huh? (Score:4, Insightful)

    by sirwired (27582) on Wednesday June 22, 2011 @06:38PM (#36536448)

    1) The expansion curve has nothing to do with the volatility BTC is currently experiencing; that's because it's a new currency with an uncertain future (in terms of who will accept it later).

    The expansion curve has everything to do with BTC's issues. The poorly-chosen curve guarantees deflation if the currency is going to expand to a level where the net value of every BTC in existence is more than a trivial, useless, quantity. Expected deflation triggers hoarding. Hoarding triggers illiquidity. Illiquidity triggers volatility.

    2) People's expectations of a nascent currency's volatility are way too high. Any new currency is going to be that way! This expectation is effectively ruling out any new currency that can't get its volatility down to that of the USD immediately -- which means you're against any new currencies that don't start with some stabilizer. (Btw, no you can't tell me how much gasoline a USD will buy tomorrow.)

    When the Euro was introduced, nothing even remotely like this volatility occurred. Nothing like this: [] That's a chart that I'd expect to see with a pump-n-dumped penny stock or a fad like Beanie Babies. Not a serious means of value transfer.

    This is a problem with the currency, not "people." If the currency was more liquid because of a better chosen expansion curve, it would not be an issue. (BTW, I can say that my USD will purchase 93-octane gas at around $3.90 to the gallon tomorrow in my area. I can say that with error bars of around 2%, barring some major swing in the world oil markets that have nothing to do with currency valuations. I can make no such statement about BTCs.)

    3) Inflation and deflation are caused by changes in *expectation* of the growth the money supply. That is, it's only unexpected money shocks that change the price level/inflation rate. Bitcoin has broadcast how many there will be at all points in time, eliminating this uncertainty. This means that there will be no unexpected growth (though their could be unexpected velocity, liquidity, or acceptance level), and so the limited (final) quantity of bitcoins is *already priced in*.

    So you won't have a scenario where, in 20xx, people say, "golly, they just stopped minting bitcoins, now they're suddently ultra scarce so we have to bid MORE MORE MORE for them." No: everyone will price in this event well in advance of the termination of growth.

    At current prices, the total number of BTCs, after every single one has been mined many years from now, is roughly $303M (at current supply levels, it's much smaller, but I'm trying to cut the BTC some slack here.) For a currency that seeks worldwide adoption as an alternative to Visa/MC, this is, to be blunt, puny. Last year, Visa ran $5.4T in payments. If BTCs achieve the pathetic ubiquity of Discover (not accepted most places, little international presence), they managed to transact about $100B. If every BTC in existence at the end of BTC creation changed hands twice a week (which would be an unheard of currency velocity for an economy with a vaguely stable currency... the USD's velocity is approx. once a month.), the currency would have to deflate by a factor of 30 to reach $100B. (At the velocity of the USD, it would have to deflate by a factor of 240-ish.) Because it would have to deflate so much to be useful, it's unlikely to ever actually do so. T

  • by Nursie (632944) on Wednesday June 22, 2011 @10:07PM (#36537884)

    "Have you visited the Bitcoin forums? Quite a few economists there."

    I have visited the bitcoin forums. The stupid, it burns.

    Not all the posters, no. But it seems to be a mix of people with a moderate understanding of economics coloured with an extreme libertarian bias, people who have no idea about economics at all, conspiracy theorists and folks who are heavily 'invested' in bitcoin screaming at other people to shut up.

    I also think a crypto currency is cool, and an interesting idea. I think the hard quantity limit and fixed creation rate are dumb as hell, and I think what's going on right now is a bubble. I think it's a bubble not just because of the way the price has been moving around, but because there is virtually no genuine economic activity in bitcoins. Almost the entire bitcoin economy is built on exchanges and speculation, there's very little real, actual stuff you can buy with it.

    Add to that the hoarding factor, that means people are hanging on to vast swathes of bitcoins as an investment, and what you have is an investment into something with no inherent worth but a lot of inherent scarcity. You don't really have a currency or medium of exchange though.

    Oh, and then there are the inactive early blocks, the 25% or so of the current total of bitcoins that are thought to be in the hands of one or two people, who stand to have control over a quarter of the entire BTC wealth if it takes off... not a recipe for stability, nor a recipe for people like me to feed 'real' cash into the system to enrich them.

    So why do people like me get mildly angry about it? I think it's because firstly it looks like a missed opportunity. Bootstrapping a crypto currency is a fantastic thing to do. Bootstrapping one with the properties of bitcoin is just a disappointment.

    Also the fanclub drives me mad.

On the Internet, nobody knows you're a dog. -- Cartoon caption