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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 Britcoin.co.uk.) 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.

Crypto-Anarchism?
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 [wikipedia.org] 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.

Aspirations
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 www.Britcoin.co.uk (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 www.britcoin.co.uk 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.

Britcoin.co.uk 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.

Terminology

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.

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Amir Taaki Answers Your Questions About Bitcoin

Comments Filter:
  • by Anonymous Coward on Wednesday June 22, 2011 @03:16PM (#36533222)

    How do I combat the shakes when 24 hours pass without a Bitcoin article on /.?

  • by vgerclover (1186893) on Wednesday June 22, 2011 @03:17PM (#36533230)
    How have you managed to flood /. on a daily basis?
  • by OverlordQ (264228) on Wednesday June 22, 2011 @03:18PM (#36533268) Journal

    So in short, lots of rationalization for having spent lots of time working on this with nothing of real substance to get people to actually use it.

    • by tepples (727027)
      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.
      • by David Gerard (12369) <slashdot@NOSpam.davidgerard.co.uk> on Wednesday June 22, 2011 @03:32PM (#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 ArhcAngel (247594)

          USD are also a lot more popular. This is actually important:

          You are right...it is very important. It is important that people perceive their money has value. The USA measures this perception and calls it the Consumer Price Index [wikipedia.org] (CPI). But perceptions can quickly change and destroy economies [wikipedia.org].

        • by Shados (741919)

          Hell, a lot more than that, since banks across the world will give you most any other currency at a fairly standard rate for those pieces of papers called US dollars.

          So really, its more like a few billion peoples. Just some of them will ask for a bit more to cover the fees and inconvenience.

        • USD are also a lot more popular.

          Of course! Try buying weed with a friggin' Bitcoin.

      • by vlm (69642)

        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.

        You can pay tax in BTC the same way you can pay tax in euros... simple conversion... Anyone who tried to claim euros are worthless because form 1040 requires dollars would be laughed at.

        • Re: (Score:3, Insightful)

          by Beelzebud (1361137)
          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 vlm (69642)

            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.

            OK, for the sake of argument, since you insist for some reason that the money changers who do exist, do not exist, I will humor you. If they're worthless, and you have a hundred thousand of them, because they're worthless, give those worthless things to me. To me, they're worth a couple bucks a piece because I can quite trivially (trivially for me, because I can use google) turn each into dollars or any other currency I desire.

            I am tempted to create a BTC receiving address and post it in this thread so al

            • Re: (Score:2, Funny)

              by Beelzebud (1361137)
              I don't have bitcoins to throw in your tin can. Go get a job and earn real money, bum.
              • by vlm (69642)

                LOL best summary of the opposition to BTC I've seen in awhile.

            • by CharlesDonHall (214468) on Wednesday June 22, 2011 @05:55PM (#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!

          • What exactly backs bitcoin besides "Some guy" in an IRC channel?

            The only thing that backs ANY currency is the belief that it has value. While I think bitcoins are ridiculous, ill-concieved and overhyped concept, they have as much value as people believe they do in exactly the same way as the dollar or the euro. A currency is useful because we believe others will accept it as a proxy good that can be easily exchanged for other good. There are very good reasons to believe that the dollar or the euro will continue to be valued by others (including network effects and tax

        • Here's the difference: nobody is converting other currencies into BTC in order to pay their taxes. That undermines the demand for BTC and doesn't say much for its long-term prospects. Nobody is punished for not having BTC, but people can be punished for not having other currencies (i.e. because they are punished for not paying taxes), which leads me to believe that over time people will sell their BTC more rapidly than they buy (or in other words, that BTC needs to keep getting more people to buy into th
        • by idontgno (624372)

          Anyone who tried to claim euros are worthless because form 1040 requires dollars would be laughed at.Only a man made of hay would claim that. But, if you have a positive quantity on line 76 of your IRS Form 1040, it doesn't matter if you want to pay your US tax bill with Euros, diamonds, or your left kidney: it won't work. You have to exchange the appropriate amount of whatever you've got into U. S. Dollars.

          Same with Bitcoins. And from that limited perspective, Bitcoins are no more immediately valuable tha

          • by vlm (69642)

            Anyone who tried to claim euros are worthless because form 1040 requires dollars would be laughed at.Only a man made of hay would claim that. But, if you have a positive quantity on line 76 of your IRS Form 1040, it doesn't matter if you want to pay your US tax bill with Euros, diamonds, or your left kidney: it won't work. You have to exchange the appropriate amount of whatever you've got into U. S. Dollars.

            Same with Bitcoins. And from that limited perspective, Bitcoins are no more immediately valuable than a trunk full of aluminum cans or a suitcase full of Pound notes. You pay your debts to the government in the properly-denoted currency demanded by that government, or you rot in jail.

            So what exactly is your point? I'm, frankly, mystified how that could even remotely be relevant.

            Lets do the standard /. procedure here:
            1) I have a cloth bag at home with a handful of euro coins in it from last time I visited southern Ireland.
            2) I can't pay my taxes with euro coins.
            3) ....
            4) I will rot in jail and/or Profit!!!!

            I think we're missing a little something in step 3...

            A trunk full of UK pound notes should be able to pay most reasonable tax bills, there's dozens of old fashioned brick and mortar p

        • You can pay tax in BTC the same way you can pay tax in euros... simple conversion... Anyone who tried to claim euros are worthless because form 1040 requires dollars would be laughed at.

          Sure you can convert bitcoins. However you also are exposing yourself to significant exchange rate risk and probably liquidity risk. I can exchange any currency but not every currency is equally desirable. Just because I can use bitcoins doesn't necessarily make it a good idea. Euro's aren't worthless because they require exchanging but there is a very real cost and some very real risks to exchanging currencies.

      • The big difference I can see is that one can pay tax in USD.

        More importantly, you can be arrested and lose your property if you refuse to pay your taxes, and you need to use USD to do so. Nobody is punished for not having BTC, but people can be punished for not having USD, which creates some serious imbalance in the demand for BTC.

        • by vlm (69642)

          More importantly, you can be arrested and lose your property if you refuse to pay your taxes, and you need to use USD to do so. Nobody is punished for not having BTC, but people can be punished for not having USD, which creates some serious imbalance in the demand for BTC.

          If your one and only contact with the economic system is paying taxes, you need to get out more.

          If the $ were exclusively used to pay taxes, it would be fairly worthless, people would burn cash in the winter to keep warm, or use it as toilet paper. In that situation it would seem pretty trivial to find someone who does business with the govt to trade some BTC for some cash-firewood.

          • If the $ were exclusively used to pay taxes, it would be fairly worthless, people would burn cash in the winter to keep warm, or use it as toilet paper.

            ...and then the IRS would come and arrest them, because they wouldn't have any money available to pay their taxes with.

            I never said the only thing USD was useful for was paying taxes. However, at least in theory anything that BTC can be used for USD could also be used for; yet there are things that USD can be used for (settling debts with the government, paying fees to the government, etc.) which BTC cannot be used for. There is therefore an imbalance in demand, at least among US users of BTC.

          • by hedwards (940851)

            It's not just taxes, it's any other form of debt. So, the landlord has to take USD for the rent, and the CC company. It's unlikely that we'll get to the point where you can't use them to buy groceries. Your utilities by law have to take USD as payment for service.

            I'm not aware of anybody that requires bitcoins where there isn't a viable alternative.

      • by demonbug (309515)

        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.

        I see this claim a lot, but I think it is a little bit backwards. The value of the USD isn't in that they can be used to pay tax, it is that they are backed by the US Government, which imposes (and enforces) taxes. That is, while they are not backed by gold or some other set commodity, they are backed by the taxes collected by the US Government. So by extension, USD are backed by all of the physical goods produced, services rendered, and real estate owned in the U.S.

        This is of course a simplification and no

      • Re: (Score:3, Insightful)

        by Anonymous Coward

        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.

        Nonsense.

        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 y

  • The "why would anyone accept bitcoin given its instability" question was admittedly a bit inflammatory, but it would have been nice if he'd even made an attempt at answering it.

    When the market doesn't have enough volume to smooth out wild gyrations like over the past few weeks it's completely unacceptable for real world use...

    • His "solution" was that merchants should just instantly move into and out of BitCoins on currency exchanges so that the swings were not an issue. And somehow using these currency exchanges will magically be cheaper than Visa/MC/ACH.

      Unanswered inevitable followup: Why would anybody go through that much trouble instead of just trading in their desired currency to begin with? And who pays to run these currency exchanges?

      • To be fair, it is hard to be more expensive than Visa/MC/ACH. Also, one would work on some money that isn't the desired currency if the other party is willing to work such currency. If you can exchange it imediately, why would you refuse a currency that isn't your preferred one (maybe add a small amount for conversion, but not refuse).

        I never expected Bitcoin to get where it is, and I don't expect it to go much further. But I was wrong once...

        • The BTC exchange volumes are still far too low for a sane merchant to accept; the bid/ask spread and intra-day volatility is far too high. So, I'd accept my BTC, wait the required 10 minutes before I can turn it around (the BTC FAQ talks about this), and then end up collecting several percent less (or more) actual currency than I priced for. And that's if I implement totally dynamic pricing feeding off the data feed of my preferred exchange.

          And Visa/MC provide far more services than just transfer. I gues

  • by Fnkmaster (89084) on Wednesday June 22, 2011 @03:26PM (#36533372)

    The bitcoin effort needs the involvement of some economists with experience studying and understanding currencies, not just techies. It could also use some PR and marketing people, with all the bad press they've been getting lately for their poorly crafted currency system.

    It sounds like they have the technology stuff reasonably well figured out, but they have utterly failed on the economics and marketing side of things.

    I suspect that bitcoin needs to be replaced with a new system that has the advantages of the current without the raging disadvantages, re-branded without the negative associations of bitcoin, and work to make sure they don't fuck up again.

    • by Duradin (1261418)

      "It could also use some PR and marketing people"

      Please, for the love of $DEITY, no more PR and marketing people at /..

    • The bitcoin effort needs the involvement of some economists with experience studying and understanding currencies

      Funny how mainstream economists connect currency with banking and government, and how they advocate the role of governments and banks in regulating and stabilizing currency.

      I suspect that bitcoin needs to be replaced with a new system that has the advantages of the current without the raging disadvantages

      Most digital cash systems call for a bank to issue the digital currency in exchange for physical currency. I would like to see those systems more widely deployed, although I get the feeling that the current banks would not be too enthusiastic about introducing an electronic payment system that deprives them of transactions fees.

    • Re:Needs economists (Score:4, Informative)

      by genjix (959457) on Wednesday June 22, 2011 @03:53PM (#36533782)

      The guy in our group (Donald Norman) that handles the business side of things is well educated in finance and economy. He's been deeply looking into that for a while now and has been communicating with Ben Friedman. Our group has for a long time been in contact with an economics professor, Adam Bragar. He's been specifically following and studying Bitcoin from an economics perspective too.

    • I have the nagging suspicion that your comment was code for "they need to turn bitcoin into an inflationary currency but don't realize it because they're so economically illiterate".

      In that case, I would suggest that, more than an economist, Bitcoin's developers need an ethicist nearby. You know, someone who can tell them that, "Hey, you got everyone involved in this currency on the promise of a very specific rate of money supply growth. If you default on this promise you made to every user, you are an as

      • Screw an inflationary currency and all those pro/con arguments. I'd settle for one that was vaguely stable. I can tell you about how much [insert product or service here] 1USD will buy tomorrow. I haven't the least flipping clue how much a BitC is worth tomorrow because it's a niche, illiquid, broken-by-design, proof-of-concept. And as I've made a zillion posts on Slashdot pointing out, a "global currency" that must experience many orders of magnitude of deflation in order to be something other than a t

    • Re:Needs economists (Score:4, Interesting)

      by Flaming Foobar (597181) on Wednesday June 22, 2011 @04:54PM (#36534662)

      The bitcoin effort needs the involvement of some economists with experience studying and understanding currencies, not just techies.

      Have you visited the Bitcoin forums? Quite a few economists there. Also, high profile magazines, such as The Economist [economist.com], have written about it from the point of view that Bitcoin is, in the very least, a highly interesting experiment. No mention of any built-in economic failures there.

      I don't understand the knee-jerk reaction that everyone here gets each time Bitcoin is mentioned. Almost every time it's accompanied misconceptions about USD being backed or otherwise thinking that something which is currently valuable (such as gold) is somehow guaranteed to always be that way.

      No, I don't have anything invested in Bitcoins, and I wouldn't want to store much value in it until it has stood the test of time, and the implementations are more robust. I was shocked when I found out the private keys are stored locally in an unencryped file - that's a f***ing travesty.

      But I do find the concept fascinating.

      • by Nursie (632944) on Wednesday June 22, 2011 @11:07PM (#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.

  • by eldavojohn (898314) * <eldavojohnNO@SPAMgmail.com> on Wednesday June 22, 2011 @03:27PM (#36533388) Journal
    In regards to the question on illegal purchases with BTC he said:

    However, I really want people to understand one thing. The criminalization of Bitcoin would not stop the illegal activity that surrounds it.

    Well, I think you're jumping to conclusions if you thought that the idea is to halt the drug trade and prostitution rings by illegalizing BitCoins. I think the question was really asking how you feel about BitCoins enticing and extending illegal activities. Allow me to provide a real world example. A person I knew in a small town high school was making yearly trips to the nearest metropolis with his stash of cash, purchasing drugs from many sources and then driving back and dealing them. At some point this stash became $15,000 and on his last trip he made his first stop to pick up some mushrooms from a woman who had been compromised by police. As he pulled away, they picked him up and found some shrooms but also $14,000. Now, he went to jail for six months for drug possession but also the very large sum of money. They were able to prove that he was a dealer and was en route to make more purchases. If he had had BitCoins, he merely would have kept a wallet on his phone then transferred the cash to the woman and could have denied the whole transaction had taken place and was clueless about the shrooms in his car. Would they have been able to make anything stick?

    Criminalization would only stop people from enjoying the tremendous and fruitful benefits of such a system, it would hinder the social good.

    Not if the bad elements of society enjoy those "fruitful benefits" much more than the rest of society. All the old organized crime tactics like protection rackets suddenly become virtually untraceable when you can demand the money be sent to an anonymous BTC handle and then move it again. The flow of cash is a seriously important element in detecting and prosecuting crime and the anonymity of a currency destroys that. Corporate embezzlement becomes easier, drug dealing becomes easier, funding terrorism becomes easier, etc. Someone could steal my bank account information and pilfer money from me tomorrow but at least the bank would be able to trace it. Who traces the stolen wallet files? Sure the bank charges an overhead but they provide a service that is more secure than a mattress store.

    You seemingly sweep the bad under the carpet and talk about only the good. This is a double edged sword and it's insulting for you to deny it.

    We are aggressively advocating and promoting the legalization and regulation of the exchanges.

    You keep saying this but you fail to provide any details on how this will be done. When transactions are anonymous, how in the hell does this happen?

    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.

    That is so bizarre, you're all for the regulation and legalization of exchanges ... are you seriously that daft that you don't think the government is going to tax that which it regulates? You can't eat your cake and have it too. How will we fund schools and libraries and roads if everyone's going through BTC? How will we even know that everyone's going through BTC? I cannot fathom how you expect this to work!

    I understand the good points of this experiment but I'm insulted by how quickly you try to pull the wool over everyone's eyes.

    • by vlm (69642)

      Same way they got Al Capone, tax evasion. Dude has no non-BTC income, dude spends $250K/yr on non-BTC "things" resulting in Big Trouble.

      There seems to be this peculiar idea that BTC is untraceable ... Not so. Once you have proof of who owns an address, you got them. Yes, you can make as many addresses as you want, just like you can make as many real world dead drops as you want. But once someone takes the bait...

    • by conner_bw (120497) *

      Someone could steal my bank account information and pilfer money from me tomorrow but at least the bank would be able to trace it.

      Yes, trace it back to themselves [goo.gl].

    • If he had had BitCoins, he merely would have kept a wallet on his phone then transferred the cash to the woman and could have denied the whole transaction had taken place and was clueless about the shrooms in his car. Would they have been able to make anything stick?

      What's the harm if they hadn't? I'm sure you can come up with a better example, and I'm sure I don't speak for the entire Bitcoin community, but I really don't see the point in the "war on drugs".

      And I have to imagine they would've been able to make it stick. They could prove he spoke to the woman, or they could gather enough circumstantial evidence... Or are you suggesting they'd have an easier time if he'd used cash? Unless they're going to intercept the cash and get his fingerprints, I don't see it. happ

  • There where many questions regarding the fact that it is an unregulated currency. Unless you are a pretty staunch Friedmanist, you acknowledge that governments have to regulate markets and manipulate currency to keep the economy running (and stop pump and dump schemes etc.).

    Since bitcoin seems to be completely resistant to any manipulation, it seems that governments not only can't do nasty big-brother type things, but also can't do the kinds of things we need it to do to stop depressions. I am disappointe

    • Since bitcoin seems to be completely resistant to any manipulation

      Except that a single compromised account on an exchange caused severe devaluation:

      http://www.engadget.com/2011/06/22/compromised-account-leads-to-massive-bitcoin-sell-off-eff-recon/ [engadget.com]

    • by Pope (17780)

      Since bitcoin seems to be completely resistant to any manipulation

      Except that it's highly affected by manipulation, as the recent Mt. Gox debacle proved. Everything about this dude's answers look like hand-waving and talking points.

    • by vlm (69642)

      but also can't do the kinds of things we need it to do to stop depressions.

      Currently they seem uninterested or unwilling or unaware of how to do those things ... Seems a fine distinction to be worried about, regardless of reason, they aren't doing it.

    • by mmcuh (1088773)
      I don't see how it could be completely resistant to manipulation. Anyone who can afford to buy lots and lots of bitcoins (e.g. a government) could set up a bank and issue loans at an interest rate that they can modify to change different properties of the economy.
  • I was thankful that my question was selected despite it not having been modded up:

    Is there any serious development underway to make the privacy more robust? ... for this to seriously work, it needs a lot more people to be involved in [laundry], 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

  • by Smidge204 (605297) on Wednesday June 22, 2011 @04:18PM (#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).
    =Smidge=

  • The responses are assertion after assertion without substantiation.

    Overall, I believe the properties of this currency will significantly add to the wealth of all peoples, especially those less well off.

    Why especially the less well off? Are they particularl known for having the sort of computing knowledge not to have a keylogger installed and their money stolen?

    Ideologies should not be a point of contention, especially when we all see the immense prolific value of a more efficient means of commerce.

    What is efficient about the way bitcoins are processed?

    Although bitcoin is still underdeveloped, everything visible in the modern world can be adapted using bitcoins as a backbone.

    What about government market regulation to prevent widespread pump-and-dump, plundering, etc.? Your argument is as complete as, "Everything in the world would be better if I were just promoted to benevolent dictator for life."

    (clearing houses, security, fraud protection, interest bearing accounts...) continuing to be offered, but with far less overhead.

    Wha

  • I do not advocate that people speculate on bitcoins.

    Which matters not the tiniest bit. Speculation inevitably occurs with any and every commodity, including currencies. Speculation is inevitable.

    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.

    There is more to transaction costs than mere liquidity. Furthermore he neatly avoids the problem of exchange rate risk.

    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.

    ??? Talk about a strawman. I don't think anyone was claiming gold was a currency, and even if it was the ONLY thing that gives ANYTHING value is the belief by both parties in an exchange that it does have value. If people believe bitcoins or gol

  • Already dated. (Score:5, Interesting)

    by Animats (122034) on Wednesday June 22, 2011 @04:55PM (#36534676) Homepage

    This reads like it was written before the peak, the first crash, the Mt.Gox break-in and shutdown, and the second crash.

    A sizable fraction of the Bitcoins in existence are now trapped at Mt. Gox (formerly Magic, The Gathering Online Exchange) which turns out to be two guys in Tokyo who are in way over their heads. Mt. Gox is trying to re-establish who owns which account. Since the names, email addresses, and hashed passwords of their customers have been published, this is difficult. No date has been given when trapped funds will be available. One thing that's now clear: don't keep any significant funds in any of these "exchanges". They're not banks. They are unregulated non-bank depository institutions.

    Meanwhile, another exchange in Chile has taken up some of the slack, and the price of a Bitcoin has settled down around $14-15. At the beginning of June, it was around $8, and last week it spiked up to $30.

    It's worth bearing in mind that the entire Bitcoin economy has less volume than a typical US supermarket. There's not much you can actually buy. Unless the volatility drops below 1%/day, there won't be. Merchants can't set prices in Bitcoins yet without a big exchange rate risk.

    Bitcoins are a reasonable idea, but the Bitcoin financial ecosystem is far too flaky to take seriously.

  • by Kamiza Ikioi (893310) on Wednesday June 22, 2011 @04:57PM (#36534694) Homepage

    Step 1 - Look at everything you hate about credit card companies... now do the reverse of all of that.
    Step 2 - Look at all the things you like about cash... now do all of that.

    You now understand the goal of bitcoin. Even cash money systems have problems starting. Just look at confederate dollars.

    Then again, you'd think the Secret Service would love a a counterfeit proof system and wish they could copy it somehow.

  • by Hazel Bergeron (2015538) on Wednesday June 22, 2011 @06:11PM (#36535642) Journal

    If SHA256 or ECDSA was ever cracked, we'd have far bigger problems to worry about than bitcoin being destroyed

    Yeah, the world was in chaos and turmoil with no currency system or economy whatever before SHA256 or ECDSA.

    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.

    You insult the people who built the Interent by comparing your little project with it. The Internet wasn't built to make a few people with awful PR skills rich. It was a resilient defence network, then an academic network, then a general communications tool. It is a network of autonomous networks, parts being built independently to make a useful whole. Bitcoin is a single, poorly-thought-out idea with one fairly routine mathematical feature.

    Bitcoin's protocol itself will need to be extended in order for it to grow.

    By me, right? This is a democratic thing, so I get to vote for the representatives who decide on monetary issues, just like with regular government, yes?

    The point to Bitcoin is that you can choose your own level of trust in an external service.

    That is the "point to" every social endeavour, including exchange of plain-ol' dollar bills.

    Then we can go further to where a person has all their funds in a trusted service like with email today-

    We could call it a "bank".

    Bitcoin- calling it a scheme for drug trafficking networks.

    So you're saying it's not for that? It shouldn't be for that? What objection do you have to that statement?

    The accepted 'standard' is to use SI prefixes.

    The accepted standard when dealing with currency you're trying to sell to the wider population is not to say things like "the accepted standard is to use SI prefixes". This is the real world, not the science lab.

    Our organisation has been aggressively seeking FSA regulation here in the UK for Britcoin.

    If the FSA even thinks about granting some sort of approval for bitcoin then I'll be giving up on this country entirely. The disease of caveat emptor libertarianism has already deregulated the financial industry to the point that the country's public and private financial affairs are neck-deep in the shit - if the same disease manages to weave its own currency into the system then sensible investors and workers ought to pack up and leave before the country collapses into depression.

    The illicit markets are a very small part of Bitcoin

    Prove it. Show me the records that bitcoin is supposed not to have.

    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).

    Because of the number of Polish people in the UK there are a billion and one reasonably priced ways of sending money quickly to Poland. If you don't know any of them and don't know how to use the Internet to find any of them then I seriously question your competence. When Poland enters the eurozone it'll be even SWIFTer, and certainly free for individuals. You know, there's a reason why it's harder to send money to certain countries, and as countries develop and their financial systems become more secure, it becomes easier to send money to those places. Since you're clearly libertarian you won't be able

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