Read the comments on Mt. Gox, they're hilarious. The first few are all optimistic and like "Good job! You guys are handling this so well!" but then you get down towards the bottom of the page and it starts to turn nasty. "I WANT OUT NOW!! HOW MANY F-ING TIMES DO I HAVE TO REPEAT I WANT OUT OUT OUT!!!"
Then you got the "NO ROLLBACK" people who probably bought up a bunch of cheap Bitcoins right at the tail end of the crash. It's just a gigantic cluster.
Clayton -
Izzy, good job finding that thread. I stand by what I said there.
Clayton, Danny Sanchez summed it up nicely; may as well quote him:
If an Austrian economist ever says that any good (including money) has "intrinsic value", they are speaking loosely. What they mean is that it has significant use value (as opposed to only significant exchange value, as is the case with fiat money). The term "intrinsic value" is widely associated with the fallacious theory of value of classical political economy, the refutation of which was the crucible out of which modern economics was forged. The everyday definition of the word "intrinsic" naturally leads to that association. Therefore, it is a most inconvenient term.
And I pointed out that Rothbard and Mark Tornton use the phrase in that sense. And that Mises, though he did not use that very phrase, recognized the concept. It's all in that thread Izzy linked to.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
Nielsio,
Nielsio:Microsoft Windows can be used for something. It runs other software on hardware.
You hereby refute your own arguments. You admit that "use" is contextual and thereby contradict your claim that Bitcoin and gold are qualitatively different. Furthermore, you do not actually use Windows in the economic sense. You use your computer. Merged together, the computer becomes more useful. Without the computer, Windows is unusable. Conversely, without an operating system, a computer is a clumsy paperweight.
This refutes your argument that goods only have value if they are consumed. Rothbard says himself in MES that some capital goods are created solely for the purpose of producing other consumption goods, and cannot be consumed directly. The picture in your video with exchanges ending in consumption is therefore erroneous.
Hi all (first post here).
I also recently wrote a blog post on Bitcoin, referencing Suede's post above. Unfortunately I'd not discovered this thread and a lot of what I said seems to have already been pointed out here.
Anyway I thought it might be of interest to anyone interseted in this topic. Summary: Bitcoin does have a number of interesting unique properties, but as a currency it has a fatally flawed design.
http://fetchezlavache.millerchip.net/post/12642128191/bitcoin
Nice article.
Hi Adam,
Nice article. Have you seen my video series on Bitcoin? http://nielsio.tumblr.com/post/12407460182/bitcoin-from-an-austrian-perspective
Isn't bitcoin just another fiat currency?
There's no commodity that this currency stands for, as with gold or gold certificates. Its sole benefit is that it can't be inflated or stolen and isn't controlled by a state.
Why not simply go back to a commodity money. Far better than relying on the bitcoin central control and sponsor, whom is the central weakness here.
Found a money on commodity and there's no chance of broken algorithms and no trust-point like the guy who invented it and ostensibly holds the keys to the kingdom.
Bitcoin is a commodity: it is fungible and its price is determined by the interplay of supply and demand. Bitcoin is a replacement for the banking system, something which physical commodities like gold cannot do. Since nowadays most transactions are conducted electronically rather than with physical exchange of the specie, not having the ability to do so natively is a showstopper.
The supply of gold (or any physical commodity for that matter), while more stable than the supply of fiat, is still prone to large shocks. Significant proportion of the matter and energy in the universe can be converted into gold, it's just too expensive at the current prices. It has been demonstrated that gold can be synthesised in particle accelerators and nuclear reactors. How do you think gold came into existence? It is the result of nuclear reactions occuring in stars.
Bitcoin is also less prone to expansion of money supply through fractional reserve banking than gold. FRB with gold is almost inevitable, because for most uses, such as bank notes and demand deposits, it requires the inception of money substitutes. Thes have maintenance costs, and these need to be covered somehow. Either the issuer charges a fee for the maintenance (e.g. demurrage), or they lend the money out and collect interest (FRB). There is no third option. Since Bitcoin is virtual, it can be transacted in any form and does not require substitutes. Without substitutes => no expansion of the money supply.
Also, due to its open source nature, Bitcoin promotes innovation. Multisigning, conditional escrow, offline private key and transactions are just some of the ones I think are the most interesting.
Stable money supply + replacement of a crappy banking system + innovation => value.
How do you quote on this site? Meh I'll just do it manually...
Anenome: "Far better than relying on the bitcoin central control and sponsor, whom is the central weakness here.
Found a money on commodity and there's no chance of broken algorithms and no trust-point like the guy who invented it and ostensibly holds the keys to the kingdom."
You should take the time to understand it properly before you take such a critical tone. Bitcoin has neitehr centralised control (it is decentralised), nor a sponsor (it is run by volunteers for profit in bitoin). There is nobody that holds the keys to the kingdom, the application code is open source and has been published for all to inspect.
If you want to attack it, attack it on its true flaws. The points you mentioned are actually some of its strengths. Along with the fact that it enables instant transactions between individuals without a third party, and that it solves the double spending problem.
@Nielsio Actually now you mention it I think I had in the past, before I had done any reading about Economics. I remember disagreeing with you when I was a Bitcoin fanboy. :-) I'll take the time to watch them again when I get a spare moment. Your V for Voluntary stuff looks interesting too.
@Peter Sidor
There is a third option: Full reserve banking. There is no expansion of the money supply. There is also no reason why banks would necessarily have to charge for storing money in a checking account. Some might, some might not. There may be other options that more entrepreneurial banks would come up with if given the chance.
Assuming you meant me, I'm not Sidor but that's just a side note, feel free to call me whatever you want.
Full reserve banking is the option 1 that I mentioned (maintenance fees = demurrage). Someone has to pay them. If it's not the holders or transaction processors, then the bank needs to charge someone else. They wont do it from the goodness of their hearts. Also, this option makes bearer-instruments (such as bank notes) less likely because there's no way to charge the holder since the bank does not know who he is in the first place. This leads to centralisation of the banking system.
Futhermore, I find it unlikely that FRB would be outlawed even in anarchocapitalism (much less so in statism). I find the arguments of Block/Hoppe in Against Fiduciary Media unsatisfactory. Block seems to favour outlawing all short positions (I might be mistaken here, I just vaguely recall noticing something like this somewhere) and that's simply impossible to implement.
With purely virtual decentralised currencies like Bitcoin, all these issues are gone and there's no reason to debate them. Debt instruments denominated in Bitcoin are technologically incompatible with it, so anyone can trivially distingiush between them and has no reason to accept them instead of a native Bitcoin form.
My mistake, there is another user here called Peter Sidor and for some reason I read your name that way.
Of course someone has to pay the cost. My point is that it may not necessarily be the user that is charged. Look at gmail and other free email services or search engines. Users are not charged a fee to use these services, but of course the cost is paid by someone - advertisers in this case. I did not want to speculate on how a bank might find a way shift the cost. Perhaps they might provide a discount to clients who have savings accounts. In other words, have a savings account with $100 in it and you can have $50 in your checking account at no cost. Or whatever. I'm just not convinced that banks must necessarily charge the user of a checking account to store his money.
Perhaps FRB would not be outlawed, but without a safety net, these banks would eventually go out of business.
I'm not about to debate the pros and cons of bitcoin, as it has been beaten to death in other threads.
gotlucky: Of course someone has to pay the cost. My point is that it may not necessarily be the user that is charged. Look at gmail and other free email services or search engines. Users are not charged a fee to use these services, but of course the cost is paid by someone - advertisers in this case. I did not want to speculate on how a bank might find a way shift the cost. Perhaps they might provide a discount to clients who have savings accounts. In other words, have a savings account with $100 in it and you can have $50 in your checking account at no cost. Or whatever. I'm just not convinced that banks must necessarily charge the user of a checking account to store his money.
You are correct that there is no praxeological necessity for the bearer to pay the fees. But in the long term, due to pressure from competition, this can only be done profitably if someone involved in the transaction is the one paying the cost. Google search engine, through advertising, brings together searchers and want-to-be-founds (sellers and buyers), similarly as banking brings together lenders and borrowers. While lending does not require FRB per se, FRB makes it more profitable. Gmail, like practically all digital service providers, overcommit resources (bandwith, data storage, ...) because most of the time, most customers leave them idle. If someone started using all that the provider claims to provide simultaneously, the whole system would collapse. You can crossfinance from other divisions (like Microsoft's Office and Windows are financing the media & gaming divisions), but this won't last forever.
So the examples are a fail. The question is not whether it's theoretically possible, but whether this can be done profitably in face of competition.
While there is a certain risk, there is no necessity here. Overcommitting is conducted by all kinds of service providers, it does not even require internet. Insurance, hospitals, maintenance contracts. I don't see either the Austrians rambling against them, nor do I see any mass failures due to overcommitting. Besides, banks can impose withdrawal limits in their contracts. They do it even now, in the central bank + fiat system.
Adam Millerchip:You should take the time to understand it properly before you take such a critical tone. Bitcoin has neitehr centralised control (it is decentralised), nor a sponsor (it is run by volunteers for profit in bitoin). There is nobody that holds the keys to the kingdom, the application code is open source and has been published for all to inspect. If you want to attack it, attack it on its true flaws. The points you mentioned are actually some of its strengths. Along with the fact that it enables instant transactions between individuals without a third party, and that it solves the double spending problem.
So the guy with the keys to kingdom is the one that cracks its security then (as has already happened at least once to my knowledge). Try cracking the security on a hunk of gold.
It's still a fiat currency. Its sole merit seems to be that it's a fiat currency that a government can't inflate. I'll admit, that's a nice feature. But it's still a fiat currency.
You might argue that fiat is okay as long as one can't inflate. But as long as you have a system reliant upon security, you have a weakness that will eventually fall. I don't know if this currency has a migration plan for how it could update its security, but I know that today's toughest security measures will likely prove laughable a generation or two from now, don't you think?
Peter Šurda:Bitcoin is a commodity: it is fungible and its price is determined by the interplay of supply and demand.
It certainly is not. It's intended to be a commodity, but it's a fiat currency with no backing in material wealth, except unless one should actually buy that bitcoin. But in and of itself it has no value, just like the paper a dollar is printed on.
Peter Šurda:Bitcoin is a replacement for the banking system, something which physical commodities like gold cannot do.
Not so. You don't lose the ability to use currency just because you have a commodity-based banking system. That is, you don't suddenly have to start paying for things in gold. You go back to gold certificates and the like, which is the origin of modern paper money in the first place.
Peter Šurda:Since nowadays most transactions are conducted electronically rather than with physical exchange of the specie, not having the ability to do so natively is a showstopper.
Again, this is pure strawman on your part and not well thought through. A commodity-backed currency would allow electronic transactions the same as now. To even raise this objection means you don't have much of a clue of what a currency really is.
Peter Šurda:The supply of gold (or any physical commodity for that matter), while more stable than the supply of fiat, is still prone to large shocks. Significant proportion of the matter and energy in the universe can be converted into gold, it's just too expensive at the current prices. It has been demonstrated that gold can be synthesised in particle accelerators and nuclear reactors. How do you think gold came into existence? It is the result of nuclear reactions occuring in stars.
And for anyone who knows the physics of the process, this is a silly objection. It will never be economical to use fusion to turn lead into gold, much less the other elements. To do so would cost far more than what you would obtain. What's more, a commodity-based transaction can use ANY commodity, gold is just the most typically convenient one. Humans have used silver, copper, wood, diamonds, etc. A better line of argument would be to say that the supply of gold isn't static. That's sort of true, as we continue to mine it, but largely irrelevent. The recent price shocks are largely due to investor panic. If Bitcoin were the world's safest commodity right now rather than gold, it too would have experienced the same price shock in gold's place.
Peter Šurda:Bitcoin is also less prone to expansion of money supply through fractional reserve banking than gold.
Gold and fractional reserve are separate issues entirely. You could just as easily create a fractional reserve using bitcoins. Again, I'm not sure you realize how fractional reserve works to talk this way about it.
Peter Šurda:Since Bitcoin is virtual, it can be transacted in any form and does not require substitutes. Without substitutes => no expansion of the money supply.
You don't think someone can create an IOU for a bitcoin, a "bitcoin certificate"? That would be exactly how dollars got their start. Again, I think you're not thinking this through.
Peter Šurda:Also, due to its open source nature, Bitcoin promotes innovation. Multisigning, conditional escrow, offline private key and transactions are just some of the ones I think are the most interesting. Stable money supply + replacement of a crappy banking system + innovation => value.
Perhaps it will be useful in the future and I'm just not seeing it, but it's definitely not needed. Just because our own modern system has gone off track because of a bad financial philosophy doesn't mean that a so-called virtual currency that is itself a fiat currency is going to replace it.
You're lone selling point can't merely be that the bitcoin cannot be artificially inflated. Neither can gold and all the other commodities out there.
I'll give you that it's a step forward compared to all the inflateable fiat currencies around us--which is a horror show. But I'm not convinced that this is the way forward either.
Anenome: So the guy with the keys to kingdom is the one that cracks its security then (as has already happened at least once to my knowledge). Try cracking the security on a hunk of gold.
This is nonsense. Anyone can "crack security on a hunk of gold" if they have enough firepower. Also, once the price of synthesising gold falls below the its market price, gold is screwed.
It's still a fiat currency.
Bitcoin is a commodity.
Its sole merit seems to be that it's a fiat currency that a government can't inflate. I'll admit, that's a nice feature. But it's still a fiat currency.
Bitcoin also features lower transaction costs, higher resistance to FRB and other government interference (e.g. confiscation), and higher innovation. Gold has none of this.
All physical matter can be converted into other matter. Significant proportion of all the matter and energy in universe can be converted into gold, for example. To build your monetary system relying on this not being profitable is short sighted.
Bitcoin cannot be inflated beyond the originally designed limit of 21 million against the wishes of tis users, even if its security is compromised, no more than an attacker can increase the number of days in week from 7 to 8.
Bitcoin can proactively switch to different encryption and hashing algorithms, before potential cryptographic weaknesses escalate. Gold cannot do this.
Anenome: It certainly is not. It's intended to be a commodity, but it's a fiat currency with no backing in material wealth, except unless one should actually buy that bitcoin. But in and of itself it has no value, just like the paper a dollar is printed on.
Bitcoin is fungible, its production requires the use of scarce resources, and its price is determined by the interplay of demand and supply. Fiat money requires a government force. Bitcoin is a commodity, not fiat money.
Anenome:Not so. You don't lose the ability to use currency just because you have a commodity-based banking system. That is, you don't suddenly have to start paying for things in gold. You go back to gold certificates and the like, which is the origin of modern paper money in the first place.
You miss my point. My point is that this is not gold, this is an industry based on gold.
Anenome:Again, this is pure strawman on your part and not well thought through. A commodity-backed currency would allow electronic transactions the same as now. To even raise this objection means you don't have much of a clue of what a currency really is.
If you want to conduct electronic transaction with gold, this requires the creation of gold substitutes, a whole new industry that has its costs, and is necessary to support this. Just like you claim that "Bitcoin has no value", I retort that gold has no banking. Banking industry build upon gold is not gold.
Anenome:And for anyone who knows the physics of the process, this is a silly objection. It will never be economical to use fusion to turn lead into gold, much less the other elements.
It is short sighted to argue this would never be economical. Equally short sighted is to build a monetary system relying on this.
Anenome:Gold and fractional reserve are separate issues entirely. You could just as easily create a fractional reserve using bitcoins. Again, I'm not sure you realize how fractional reserve works to talk this way about it.
FRB with Bitcoin does not affect money supply. Please consult the Austrian section of the corrensponding wiki entry I wrote: https://en.bitcoin.it/wiki/Fractional_Reserve_Banking_and_Bitcoin
Anenome:You don't think someone can create an IOU for a bitcoin, a "bitcoin certificate"? That would be exactly how dollars got their start. Again, I think you're not thinking this through.
They would not circulate, because they do not decrease transaction costs. See aforementioned wiki entry.
Anenome:Perhaps it will be useful in the future and I'm just not seeing it, but it's definitely not needed. Just because our own modern system has gone off track because of a bad financial philosophy doesn't mean that a so-called virtual currency that is itself a fiat currency is going to replace it.p
Gold cannot fix the problems of the banking industry nor is it a good tool against the government. If you're not seeing it, that's acceptable, but lack of imagination is not a replacment for an argument.
Anenome:You're lone selling point can't merely be that the bitcoin cannot be artificially inflated. Neither can gold and all the other commodities out there.
I also listed resistance to confiscation, FRB, greater innovation and most importantly, decrease of transaction costs. I think the last one has the best chance of being a mass driver in Bitcoin adoption.
Anenome:I'll give you that it's a step forward compared to all the inflateable fiat currencies around us--which is a horror show. But I'm not convinced that this is the way forward either.
The advantages of Bitcoin only become apparent through a thoroug analysis. I spent months reading books and analysing it.
Anenome:(as has already happened at least once to my knowledge).
This is the first time I'm hearing this. What specifically are you referring to? Are you sure your portrayal of the situation is correct?
Peter Šurda: Bitcoin also features lower transaction costs, higher resistance to FRB and other government interference (e.g. confiscation), and higher innovation. Gold has none of this.
Historically people did not trade gold directly, so it is hard to speak in terms of transaction costs with gold. It was done mostly using money substitutes. They have low transaction cost. Innovation has not been a problem in money substitutes business too - paypal, debit cards, you name it. I don't see how gold is any more susceptible to confiscation, especially considering it is possible, from government perspective, to know exactly how much bitcoins you personally have, which is hard, if not impossible to do, for gold. In the end your bitcoins rest on a hard drive somewhere and this hard disk is as easy to steal as gold. Am I missing something? I agree on FRB.
Peter Šurda:All physical matter can be converted into other matter. Significant proportion of all the matter and energy in universe can be converted into gold, for example. To build your monetary system relying on this not being profitable is short sighted.
As in - iron to gold convertion? It may very well be shortsighted in the long run. But how shortsighted is to put faith in correct implementation of software? IMHO this is much more down-to-earth worry. Each change in codebase form the very begininng is potential bug and bugs happen even to the best of programmers out there.
Peter Šurda: Bitcoin can proactively switch to different encryption and hashing algorithms, before potential cryptographic weaknesses escalate. Gold cannot do this.
Physical commodities don't need this. Also this is potential backdoor.
boniek: Historically people did not trade gold directly, so it is hard to speak in terms of transaction costs with gold. It was done mostly using money substitutes. They have low transaction cost. Innovation has not been a problem in money substitutes business too - paypal, debit cards, you name it.
Historically people did not trade gold directly, so it is hard to speak in terms of transaction costs with gold. It was done mostly using money substitutes. They have low transaction cost. Innovation has not been a problem in money substitutes business too - paypal, debit cards, you name it.
Yes, you are correct. However, money substitutes carry maintenance costs, and these impose a lower limit on the transaction costs. Bitcoin does not require substitutes so there is no lower limit on the transaction costs, and in long term they equillibrate at the marginal cost of electricity (plus computer hardware depreciation plus internet connectivity, but for the foreseeable future the electricity costs dominate).
boniek: I don't see how gold is any more susceptible to confiscation, especially considering it is possible, from government perspective, to know exactly how much bitcoins you personally have, which is hard, if not impossible to do, for gold.
I don't see how gold is any more susceptible to confiscation, especially considering it is possible, from government perspective, to know exactly how much bitcoins you personally have, which is hard, if not impossible to do, for gold.
We have already discussed this in the past, I believe. It is not always possible to determine how many bitcoins you have. If you mine them through a tor-connected node, for example (which has been suggested as the most paranoid method), it's practically impossible to determine who the owner is. Furthermore, there are plenty of ways of obfuscating the flow, for example laundries, offline transactions and so on.
Also, even if the government knows what you have, you can still create dead man switches and other algorithmical defenses, which you can't do with gold. You can hide gold and pray that the attacker does not torture you or kindnap your family.
boniek:In the end your bitcoins rest on a hard drive somewhere and this hard disk is as easy to steal as gold. Am I missing something?
This is very simplified method of viewing it. Bitcoin is just data and code. It can exist in any form, anywhere. It can hide in plain sight and you won't see it. It can defend itself through encryption, distribution or redundancy, for example. Imagine that your alarm rings because someone is cracing the safe where you hide gold. They have guns and you know you can't overpower them. What do you do? Forget about the gold and run. With Bitcoin, you just take a second copy of the private key and transfer the balance away. The "thief" then finds an empty safe. I'm pretty sure I have not even scratched the surface of all the defensive capabilities Bitcoin has.
boniek:I agree on FRB.
That's great, I've been in a heated debate about it for over two weeks now, good to have someone to agree.
boniek:As in - iron to gold convertion?
Well, at the moment, the easiest approach seems to be mercury -> gold conversion, but hypothetically iron -> gold is also thinkable.
boniek:It may very well be shortsighted in the long run. But how shortsighted is to put faith in correct implementation of software? IMHO this is much more down-to-earth worry. Each change in codebase form the very begininng is potential bug and bugs happen even to the best of programmers out there.
There is a certain element of truth in what you're saying, but not entirely. Even bugs in code or a successful cryptoattack cannot increase the supply of Bitcoins. At most they cause problems with online transfers, and cause the 21 million to be generated earlier than planned. There are several layers of defense that mitigate this, so a proactive switch should work out in a typical scenario.
boniek:Physical commodities don't need this. Also this is potential backdoor.
Peter Šurda:Yes, you are correct. However, money substitutes carry maintenance costs, and these impose a lower limit on the transaction costs. Bitcoin does not require substitutes so there is no lower limit on the transaction costs, and in long term they equillibrate at the marginal cost of electricity (plus computer hardware depreciation plus internet connectivity, but for the foreseeable future the electricity costs dominate).
OK.
Peter Šurda: We have already discussed this in the past, I believe. It is not always possible to determine how many bitcoins you have. If you mine them through a tor-connected node, for example (which has been suggested as the most paranoid method), it's practically impossible to determine who the owner is. Furthermore, there are plenty of ways of obfuscating the flow, for example laundries, offline transactions and so on.
Tor is not completely safe. Proof can be seen by latest attack of Anonymous on dozen or so pedophiles. They successfully recovered their original IP addresses.
Peter Šurda: Also, even if the government knows what you have, you can still create dead man switches and other algorithmical defenses, which you can't do with gold. You can hide gold and pray that the attacker does not torture you or kindnap your family.
You certainly have a point but all your trickery has fatal flaw - it significantly raises costs associated with bitcoin - it makes its usage a lot harder and costly.
Peter Šurda: This is very simplified method of viewing it. Bitcoin is just data and code. It can exist in any form, anywhere. It can hide in plain sight and you won't see it. It can defend itself through encryption, distribution or redundancy, for example. Imagine that your alarm rings because someone is cracing the safe where you hide gold. They have guns and you know you can't overpower them. What do you do? Forget about the gold and run. With Bitcoin, you just take a second copy of the private key and transfer the balance away. The "thief" then finds an empty safe. I'm pretty sure I have not even scratched the surface of all the defensive capabilities Bitcoin has.
I'm aware of those capabilities, but they add a lot of layers. Security is compromise on ease of use. The more secure you make your wallet the more impractical it is to use. The more impractical it is to get its promised benefits the less widespread it will be. And I can always turn your argument against you: You can hide bitcoins and pray that the attacker does not torture you or kindnap your family (sorry couldn't resist ;))
Peter Šurda: There is a certain element of truth in what you're saying, but not entirely. Even bugs in code or a successful cryptoattack cannot increase the supply of Bitcoins. At most they cause problems with online transfers, and cause the 21 million to be generated earlier than planned. There are several layers of defense that mitigate this, so a proactive switch should work out in a typical scenario.
I wouldn't get too hung up about impossibility to raise limit. Impossibility to use your bitcoin in transaction will be enough for people to look for alternatives. I mean what use is money to me if I can't use it to buy groceries?
Peter Šurda:Again, I can't entirely disagree with this. In the end, it can work out to be either advantage or disadvantage. But I would argue that Bitcoin is more flexible and this is what makes it interesting.
Peter Šurda: Anenome:(as has already happened at least once to my knowledge). This is the first time I'm hearing this. What specifically are you referring to? Are you sure your portrayal of the situation is correct?
It has not happened. He is probably thinking of the MtGox exchange breech.
MoonShadow:It has not happened. He is probably thinking of the MtGox exchange breech.
That is my guess as well, I just thought I'd double check.
PS I'm at the European Bitcoin Conference in Prague during the weekend, if any of you want to meet me and have a chat.
Anenome: Isn't bitcoin just another fiat currency? There's no commodity that this currency stands for, as with gold or gold certificates. Its sole benefit is that it can't be inflated or stolen and isn't controlled by a state. Why not simply go back to a commodity money.
Why not simply go back to a commodity money.
Ask Von Haus
Far better than relying on the bitcoin central control and sponsor, whom is the central weakness here. Found a money on commodity and there's no chance of broken algorithms and no trust-point like the guy who invented it and ostensibly holds the keys to the kingdom.
Far better than relying on the bitcoin central control and sponsor, whom is the central weakness here.
There is no central control or sponsor. The only known weakness is with the total brute force computational ability of the bitcoin network, which exceeds the total power of at least the top 10 unclassified supercomputers in the world combined. Anonymous could breach my username on this forum, even if I was using Tor, and backtrace me to my IP. Probably. (Anonymous didn't backtrace all users of that pedo-site, BTW) It is actually impossible for either the US government or Anonymous to determine, with any certainty, my total bitcoin wealth. They might be able to prove that I have some bitcoins, by proving that I possess a specific set of bitcoin addresses; but it's impossible for anyone to prove that those are all that I have without determining the ownership of every address in the blockchain, with is a practical impossibility.
Could there be an unknown exploit in the codebase? Certainly. Programmers are not perfect. The the protocol is truely elegant.
MoonShadow: There is no central control or sponsor. The only known weakness is with the total brute force computational ability of the bitcoin network, which exceeds the total power of at least the top 10 unclassified supercomputers in the world combined.
There is no central control or sponsor. The only known weakness is with the total brute force computational ability of the bitcoin network, which exceeds the total power of at least the top 10 unclassified supercomputers in the world combined.
Please lets be a bit more serious. Lack of known weaknesses is not the same as no weakness. It should be painfully obvious to anyone in background with computer science or even to anyone that used any software for any extended period of time. Bugs in implementation could make cracking any encryption algorithm very easy.
MoonShadow: Anonymous could breach my username on this forum, even if I was using Tor, and backtrace me to my IP. Probably. (Anonymous didn't backtrace all users of that pedo-site, BTW)
Anonymous could breach my username on this forum, even if I was using Tor, and backtrace me to my IP. Probably. (Anonymous didn't backtrace all users of that pedo-site, BTW)
Even is that is true, is that what are you saing supposed to make me feel safe? BTW bitcoin itself is not deemed anonymous in any shape or form by one of its maintainers (can't be bothered to find a quote but he said it in some interview when asked about tor site trading "illegal" drugs with bitcoins). It is not fair to argue in favor of bitcoin *possible* anonymity as if it is built into bitcoin. It isn't. If you want honest debate you should mention cost associated with every layer of added security. Most importantly (to me) there comes a cost of usability and increase of complexity which in turn raises probability of error and bugs somewhere along the road.
MoonShadow: It is actually impossible for either the US government or Anonymous to determine, with any certainty, my total bitcoin wealth. They might be able to prove that I have some bitcoins, by proving that I possess a specific set of bitcoin addresses; but it's impossible for anyone to prove that those are all that I have without determining the ownership of every address in the blockchain, with is a practical impossibility.
It is actually impossible for either the US government or Anonymous to determine, with any certainty, my total bitcoin wealth. They might be able to prove that I have some bitcoins, by proving that I possess a specific set of bitcoin addresses; but it's impossible for anyone to prove that those are all that I have without determining the ownership of every address in the blockchain, with is a practical impossibility.
Well as Peter so eloquently said in reply to my ramblings: You can hide <whatever> and pray that the attacker does not torture you or kindnap your family. It works for gold AND bitcoin. Except government can know that you have at least some bitcoin for sure whereas it can not know if you have any gold at all. Transaction log for all gold transactions is not public after all ;)
MoonShadow: Could there be an unknown exploit in the codebase? Certainly. Programmers are not perfect. The the protocol is truely elegant.
So it is about subjective preference of whether you fear programming errors more than possiblity of converting something to gold becoming feasible. I'm not saying it is only choice you have to make when considering bitcoin but it is one of them. This one is, at least to me, obvious loss to bitcoin.
boniek: MoonShadow: There is no central control or sponsor. The only known weakness is with the total brute force computational ability of the bitcoin network, which exceeds the total power of at least the top 10 unclassified supercomputers in the world combined. Please lets be a bit more serious. Lack of known weaknesses is not the same as no weakness. It should be painfully obvious to anyone in background with computer science or even to anyone that used any software for any extended period of time. Bugs in implementation could make cracking any encryption algorithm very easy.
I had spent over an hour working out a lengthy response to this post, but then it wouldn't submit and this Windoze machine that I have at work nuked the post.
Short version, Bitcoin has it's own issues that a rational critique can me made against; but these aren't them and you don't know enough about how the system works to even mount a plausible assault. Digital cash has literally never been done this way before, and as best as I can tell, neither has anything else. It's entirely a novel method, so the means that you believe that would work against it will not.
And yes, it's a subjective decision. It's a choice. I choose to trust the mathmatics of the bitcoin system over my own capacities to keep gold safe or my ability to choose a trustworthy repository; because I understand how the system works. And it does work.
Peter Šurda:Anyone can "crack security on a hunk of gold" if they have enough firepower. Also, once the price of synthesising gold falls below the its market price, gold is screwed.
Everything must be possessed, including bitcoin. If you are gold can be physically thieved, what physical items are holding bitcoins? Is there a central server or something? Why couldn't that be stolen. The main reason it's tough to steal gold is cause it's damn heavy :P
Peter Šurda: It's still a fiat currency. Bitcoin is a commodity.
The test of a commodity is that if you weren't using it as a currency, you could use it to do some other productive thing. Bitcoin does not pass this test. Sorry. You're twisting the definition of 'commodity' to call it so. Bitcoin is a token. It's a wooden nickel, with no intrinsic value in and of itself. Gold actually has economic utility outside serving as a store of value. So do all other true commodities. Paper money is not a commodity, it's fiat currency, because the value of the paper and ink that makeup a dollar do not correlate to a single dollar. Our coins are equally fake.
Peter Šurda:Its sole merit seems to be that it's a fiat currency that a government can't inflate. I'll admit, that's a nice feature. But it's still a fiat currency. Bitcoin also features lower transaction costs, higher resistance to FRB and other government interference (e.g. confiscation), and higher innovation. Gold has none of this.
Not so. It's quite difficult to inflate gold. To inflate bitcoins merely requires it mathematical security to be broken.
Lower transaction costs why? Innovation isn't a measurable quality.
Peter Šurda:You might argue that fiat is okay as long as one can't inflate. But as long as you have a system reliant upon security, you have a weakness that will eventually fall. I don't know if this currency has a migration plan for how it could update its security, but I know that today's toughest security measures will likely prove laughable a generation or two from now, don't you think? All physical matter can be converted into other matter. Significant proportion of all the matter and energy in universe can be converted into gold, for example. To build your monetary system relying on this not being profitable is short sighted.
All physical matter can be converted into gold, sure, sure, BUT AT WHAT COST, is the question you're missing here. It's not likely that we're ever going to be able to convert even lead into cost in a cost-effective manner. Meaning it will always cost more to transmute X element into gold than gold is worth. Therefore, this objection is negligible compared to the weakness of mathematical security in a virtual currency. I'll take physics based security over a mathematical one.
Peter Šurda:Bitcoin cannot be inflated beyond the originally designed limit of 21 million against the wishes of tis users, even if its security is compromised, no more than an attacker can increase the number of days in week from 7 to 8. Bitcoin can proactively switch to different encryption and hashing algorithms, before potential cryptographic weaknesses escalate. Gold cannot do this.
Who controls the reins of when and how it switches encryption? I thought you said it had no C&C structure.
Peter Šurda: Bitcoin is fungible
Bitcoin is fungible
What exactly do you mean by this. Define your term and context, 'cause I don't think it means what you think it means. In what sense is a bitcoin fungible?
Peter Šurda:its production requires the use of scarce resources
So does producing a physical dollar, but it's still a fiat currency. Am I missing something here?
Peter Šurda:and its price is determined by the interplay of demand and supply.
This is also true of dollars--a fiat currency. Everything is subject to supply and demand, gold included. You're not making a good case for bitcoin by throwing out random facts that have nothing to do with whether it's a fiat currency or not.
Peter Šurda:Fiat money requires a government force. Bitcoin is a commodity, not fiat money.
Clearly fiat currency doesn't require government force, since bitcoin seems to be the first fiat currency without government sponsorship!
Peter Šurda:If you want to conduct electronic transaction with gold, this requires the creation of gold substitutes, a whole new industry that has its costs, and is necessary to support this. Just like you claim that "Bitcoin has no value", I retort that gold has no banking. Banking industry build upon gold is not gold.
Sigh. This is just gobbledeegook. You do realize that banking was invented in the first place in the era of gold and silver based commodity currencies, right? Thus, history invalidates your "retort" but leaves my objection intact. Electronically trading gold is not done by a substitute, but rather with virtual gold certificates--each of which ostensibly still draws its value from the existence of an actual piece of physical gold somewhere in the world. Bitcoin is nothing like that.
Peter Šurda:It is short sighted to argue this would never be economical. Equally short sighted is to build a monetary system relying on this.
First of all, a non-fiat commodity can use -any- commodity, not merely gold. Meaning if a method of producing gold cheaply were created, you could quickly and easily switch your entire system to a new commodity with little problem.
Secondly, no, it's not shortsighted; it's based on rational scientific truths:
Because lead is stable, forcing it to release three protons requires a vast input of energy, such that the cost of transmuting it greatly surpasses the value of the resulting gold.
Gold is created in large quantities -only- in supernovas. Good luck starting one of those.
Peter Šurda: Anenome:Gold and fractional reserve are separate issues entirely. You could just as easily create a fractional reserve using bitcoins. Again, I'm not sure you realize how fractional reserve works to talk this way about it. FRB with Bitcoin does not affect money supply. Please consult the Austrian section of the corrensponding wiki entry I wrote: https://en.bitcoin.it/wiki/Fractional_Reserve_Banking_and_Bitcoin
Thinking about FRB, loans, and bitcoins is interesting, and that article raises some interesting discussions. Since Bitcoin is fundamentally limited in money supply (21m), you'd likely have deflation each year.
I like that.
Peter Šurda: Anenome:You don't think someone can create an IOU for a bitcoin, a "bitcoin certificate"? That would be exactly how dollars got their start. Again, I think you're not thinking this through. They would not circulate, because they do not decrease transaction costs. See aforementioned wiki entry.
The tightly controlled nature of bitcoins seen in this instance seems to be a detraction from its utility.
Peter Šurda:Gold cannot fix the problems of the banking industry nor is it a good tool against the government. If you're not seeing it, that's acceptable, but lack of imagination is not a replacment for an argument.
Very cheeky, but when i consider that bitcoinis a fiat currency proposing to fix all the problems created by fiat currencies--I'm still not seeing it. If I really need imagination to see why bitcoin is an improvement, as you seem to suggest, then perhaps there's nothing there.
Peter Šurda:I also listed resistance to confiscation, FRB, greater innovation and most importantly, decrease of transaction costs. I think the last one has the best chance of being a mass driver in Bitcoin adoption.
What is the nature of this decrease in transaction cost? If it's an artificial transaction cost, then you're gaining little to nothing. Meaning, if your sole proposal is to route around Visa and Mastercard, et al., then that might be good in the short term but in the long term, the cost of any digital transaction is the same.
Anenome: Peter Šurda:Anyone can "crack security on a hunk of gold" if they have enough firepower. Also, once the price of synthesising gold falls below the its market price, gold is screwed. Everything must be possessed, including bitcoin. If you are gold can be physically thieved, what physical items are holding bitcoins? Is there a central server or something? Why couldn't that be stolen. The main reason it's tough to steal gold is cause it's damn heavy :P Peter Šurda: It's still a fiat currency. Bitcoin is a commodity. The test of a commodity is that if you weren't using it as a currency, you could use it to do some other productive thing. Bitcoin does not pass this test. Sorry. You're twisting the definition of 'commodity' to call it so. Bitcoin is a token. It's a wooden nickel, with no intrinsic value in and of itself. Gold actually has economic utility outside serving as a store of value. So do all other true commodities. Paper money is not a commodity, it's fiat currency, because the value of the paper and ink that makeup a dollar do not correlate to a single dollar. Our coins are equally fake.
Bitcoin is neither a commodity nor a fiat currency, nor is it a token. There is no such thing as intrinsic value, gold's commodity value is significantly lower than it's monetary value. Bitcoin is not different in this fashion, for users value Bitcoin in part for it's low transaction fee functions, which cannot exist separately from the monetary unit.
Peter Šurda:Its sole merit seems to be that it's a fiat currency that a government can't inflate. I'll admit, that's a nice feature. But it's still a fiat currency. Bitcoin also features lower transaction costs, higher resistance to FRB and other government interference (e.g. confiscation), and higher innovation. Gold has none of this. Not so. It's quite difficult to inflate gold. To inflate bitcoins merely requires it mathematical security to be broken.
No, breaking the security algo does not permit inflation of Bitcoin. The only condition that would permit the arbitrary inflation of bitcoin is a consensus among it's userbase to do so. That is about as likely as consensus among parliment, probably less.
Lower transaction costs why?
Because there is no trusted third party necessary in a long distance transaction, like there would be for buying something online via a credit card or Paypal. The transaction costs are not zero, but they are significantly lower than they could be if managed by a bank than needs to pay teller salaries.
Peter Šurda:You might argue that fiat is okay as long as one can't inflate. But as long as you have a system reliant upon security, you have a weakness that will eventually fall. I don't know if this currency has a migration plan for how it could update its security, but I know that today's toughest security measures will likely prove laughable a generation or two from now, don't you think? Not only is the security model upgradeable in situ, at the will of the end users, (but not downgradeable, it's complicated) it doesn't depend upon the strength of any encryption algo. Security depends, primarily, on the ability of the Bitcoin network to out-process any single attacker or group of same working in unison. As hardware upgrades, so does the security model of Bitcoin. [quote user="Peter Šurda"]Bitcoin cannot be inflated beyond the originally designed limit of 21 million against the wishes of tis users, even if its security is compromised, no more than an attacker can increase the number of days in week from 7 to 8. Bitcoin can proactively switch to different encryption and hashing algorithms, before potential cryptographic weaknesses escalate. Gold cannot do this. Who controls the reins of when and how it switches encryption? I thought you said it had no C&C structure.
Not only is the security model upgradeable in situ, at the will of the end users, (but not downgradeable, it's complicated) it doesn't depend upon the strength of any encryption algo. Security depends, primarily, on the ability of the Bitcoin network to out-process any single attacker or group of same working in unison. As hardware upgrades, so does the security model of Bitcoin.
[quote user="Peter Šurda"]Bitcoin cannot be inflated beyond the originally designed limit of 21 million against the wishes of tis users, even if its security is compromised, no more than an attacker can increase the number of days in week from 7 to 8. Bitcoin can proactively switch to different encryption and hashing algorithms, before potential cryptographic weaknesses escalate. Gold cannot do this.
[quote user="Peter Šurda"]Bitcoin cannot be inflated beyond the originally designed limit of 21 million against the wishes of tis users, even if its security is compromised, no more than an attacker can increase the number of days in week from 7 to 8.
The end users control this. It's a majority vote mechanism, really. The rules of the network can only be changed if a majority of the processing power of the total network is willing to do so, by changing to a codebase that honors the new rules. This is the known weakness of the network, that overwhelming processing power can force a fork for as long as the attacker can keep it up. If a majority of the Bitcoin network (by processing power) decides that a change in the rules are desireable, but the remainder do not, it would force a blockchain split that can only be resolved by one side or the other quiting and leaving to start their own network. Minority code splits have happened a number of times around Bitcoin already, due mostly to some guy disagreeing with some arbitrary variable or another, such as the target block interval. None have done well except for 'Namecoin' which fills a different nitche as it uses the Bitcoin's blockchain & proof-of-work system to impliment an alternative DNS system that cannot be mucked with, but is not itself a currency in direct compatition with Bitcoin.
gold's commodity value is significantly lower than it's monetary value.
Malachi:gold's commodity value is significantly lower than it's monetary value. false. Gold jewelry is much more expensive, by weight, than gold bullion.
True, but entirely irrelevent to the commodity value of gold.
MoonShadow: True, but entirely irrelevent to the commodity value of gold.
Interesting. What is relevant to the "commodity value of gold"?
Gold jewelry is much more expensive, by weight, than gold bullion.
And a steak at Ruth's Chris' costs way more than the equivalent portion of cow.
I'm pretty sure that someone added some value along the way.
Anenome: Peter Šurda: Bitcoin is fungible What exactly do you mean by this. Define your term and context, 'cause I don't think it means what you think it means. In what sense is a bitcoin fungible?
Every bitcoin is of equal value and usefulness as any other. Said another way, gold is generally fungible, but not every item of gold is of quite equal value. A round made by a trusted mint is of slightly higher value than others. Bitcoins are also infinitely divisible, presently down to the eight decimal place with the current implimentation. Gold is also highly divisible, but a trade currency based upon grains of gold are more difficult to assay than a millionth of a bitcoin. A running bitcoin node can assess the validity of any amount of bitcoin in milliseconds for a nominal cost of zero.
Peter Šurda:its production requires the use of scarce resources So does producing a physical dollar, but it's still a fiat currency. Am I missing something here?
The definition of "fiat" is "by decree of the king". Bitcoin is a currency, but neither a commodity (as any Austrian would define it) nor a fiat currency. It's something completely different. All comparisions to existing systems ultimately fail. That said, the closest thing that exists to Bitcoin is a Local Exchange Trading System (LETS) type currency, wherein the local trade zone is the whole of the Internet.
Peter Šurda:and its price is determined by the interplay of demand and supply. This is also true of dollars--a fiat currency. Everything is subject to supply and demand, gold included. You're not making a good case for bitcoin by throwing out random facts that have nothing to do with whether it's a fiat currency or not. Peter Šurda:Fiat money requires a government force. Bitcoin is a commodity, not fiat money. Clearly fiat currency doesn't require government force, since bitcoin seems to be the first fiat currency without government sponsorship! Fiat currency requires government force, by definition. Please look up the term. Peter Šurda:If you want to conduct electronic transaction with gold, this requires the creation of gold substitutes, a whole new industry that has its costs, and is necessary to support this. Just like you claim that "Bitcoin has no value", I retort that gold has no banking. Banking industry build upon gold is not gold. Sigh. This is just gobbledeegook. You do realize that banking was invented in the first place in the era of gold and silver based commodity currencies, right? Thus, history invalidates your "retort" but leaves my objection intact. Electronically trading gold is not done by a substitute, but rather with virtual gold certificates--each of which ostensibly still draws its value from the existence of an actual piece of physical gold somewhere in the world. Bitcoin is nothing like that. Dude, a gold cert is a gold substitute by definition. Are you trolling? Try and prove that there is a ounce of gold for every gold cert that claims same. I can prove that every bitcoin that exists is a valid and true bitcoin. That is the point. Anenome:Gold and fractional reserve are separate issues entirely. You could just as easily create a fractional reserve using bitcoins. Again, I'm not sure you realize how fractional reserve works to talk this way about it. I dare you to try it. FRB with Bitcoin does not affect money supply. Please consult the Austrian section of the corrensponding wiki entry I wrote: https://en.bitcoin.it/wiki/Fractional_Reserve_Banking_and_Bitcoin Thinking about FRB, loans, and bitcoins is interesting, and that article raises some interesting discussions. Since Bitcoin is fundamentally limited in money supply (21m), you'd likely have deflation each year. I like that.
Peter Šurda:and its price is determined by the interplay of demand and supply. This is also true of dollars--a fiat currency. Everything is subject to supply and demand, gold included. You're not making a good case for bitcoin by throwing out random facts that have nothing to do with whether it's a fiat currency or not. Peter Šurda:Fiat money requires a government force. Bitcoin is a commodity, not fiat money. Clearly fiat currency doesn't require government force, since bitcoin seems to be the first fiat currency without government sponsorship!
Fiat currency requires government force, by definition. Please look up the term.
Peter Šurda:If you want to conduct electronic transaction with gold, this requires the creation of gold substitutes, a whole new industry that has its costs, and is necessary to support this. Just like you claim that "Bitcoin has no value", I retort that gold has no banking. Banking industry build upon gold is not gold. Sigh. This is just gobbledeegook. You do realize that banking was invented in the first place in the era of gold and silver based commodity currencies, right? Thus, history invalidates your "retort" but leaves my objection intact. Electronically trading gold is not done by a substitute, but rather with virtual gold certificates--each of which ostensibly still draws its value from the existence of an actual piece of physical gold somewhere in the world. Bitcoin is nothing like that.
Dude, a gold cert is a gold substitute by definition. Are you trolling? Try and prove that there is a ounce of gold for every gold cert that claims same. I can prove that every bitcoin that exists is a valid and true bitcoin. That is the point.
I dare you to try it.
Actually, not quite. It will take until 2130 or so before all 21 million bitcoins are issued and issing ceases. So bitcoin is currently quite inflationary, and will be higher than 3% APR for many more years.
Peter Šurda: Anenome:You don't think someone can create an IOU for a bitcoin, a "bitcoin certificate"? That would be exactly how dollars got their start. Again, I think you're not thinking this through. They would not circulate, because they do not decrease transaction costs. See aforementioned wiki entry. The tightly controlled nature of bitcoins seen in this instance seems to be a detraction from its utility.
How?
MoonShadow: Malachi:gold's commodity value is significantly lower than it's monetary value. false. Gold jewelry is much more expensive, by weight, than gold bullion. True, but entirely irrelevent to the commodity value of gold.
Malachi: MoonShadow: Malachi:gold's commodity value is significantly lower than it's monetary value. false. Gold jewelry is much more expensive, by weight, than gold bullion. True, but entirely irrelevent to the commodity value of gold. Gold jewelry is one use of the commodity of gold. Therefore the commodity value of gold can, and frequently is, much greater than the exchange value. When you buy a gold chain from a jewelry dealer, you pay a premium for the commodity. When you later attempt to use your gold commodity as money, generally people value the jewelry by weight. In these instances, which I hope we can agree are the vast majority, the monetary value of gold is less than the commodity value.
In the case you describe, the monetary value of the gold (by weight) is less than the commodity value of jewelry, not of the commodity value of gold, which is invariablely lower than of any useful item made from it. As another poster tried to point out already, the difference is value added through skilled labor. The commodity value of gold is always less than or equal to it's monetary value, and the only time it's equal is when it's monetary utility is failing, for the the monetary trade uses of a commodity is, itself, an added value.
In the case you describe, the monetary value of the gold (by weight) is less than the commodity value of jewelry, not of the commodity value of gold, which is invariablely lower than of any useful item made from it.
Peter Šurda:I also listed resistance to confiscation, FRB, greater innovation and most importantly, decrease of transaction costs. I think the last one has the best chance of being a mass driver in Bitcoin adoption. What is the nature of this decrease in transaction cost? If it's an artificial transaction cost, then you're gaining little to nothing. Meaning, if your sole proposal is to route around Visa and Mastercard, et al., then that might be good in the short term but in the long term, the cost of any digital transaction is the same.
Yes and no. The present systems for online transactions (involving Visa, Paypal, etc) all involve financial entities with human overhead. Bitcoin has no human overhead. It's total transaction costs are a function of the median cost of electricity and the availability and costs of efficient computer hardware. Perhaps also costs of bandwidth, but that depends upon who you are, for it's entirely possible that Bitcoin can "piggyback" with only nominal network loading over a network connection paid for by other wants or needs. Bitcoin doesn't presently require anything near the bandwidth of other wants such as bittorrent or shoutcast even for a full node, and 'lightweight' nodes have been part of the protocol since day one, so the vast majority of users can disregard the costs of network bandwidth completely so long as they have a respectable data plan on their Android phone.
Malachi:In the case you describe, the monetary value of the gold (by weight) is less than the commodity value of jewelry, not of the commodity value of gold, which is invariablely lower than of any useful item made from it. How do you define a "commodity" if it is something different from a "useful item"?
A commodity is what useful items are made from. For example, steel is a commodity and an I-beam structural member is a useful item made from same. Tea leaves, water and suger are commodities, while sweet tea is a desirable drink made from them. Silver is a commodity (and a money), but it has numerous uses in industry that gold does not, such as an anti-bacterial agent when infused into surgical wound dressings and a heat conductor when infused into grease and sweezed between a hot cpu and it's heat sink. Discounting the uses in jewelry, gold's commodity value would be less than silver's at present, in part, because there is less silver in an elemental form available today than gold. Yes, silver is more rare in an 'above ground' and refined form than gold. Gold is only much more valuable than silver due to it's history as an ideal money, and thus it's monetary value.