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Is BitCoin the currency of the future?

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ama gi posted on Thu, Aug 6 2009 1:09 PM

One day, while I was learning about cipherspace, I discovered BitCoin.  BitCoin is a completely decentralized, anonymous online monetary system that relies on a distributed database to facilitate transactions.  The creator put a great deal of effort into ensuring that the system is secure and reliable.  Unfortunately, there are no real assets backing he currency of BitCoin (and no coercive government backing it either).  Thus ends BitCoin.

I can imagine, though, a system like BitCoin that allows people to write promissory notes and sign them with an RSA digital signature (to prevent couterfeiting).  These promissory notes could be backed by gold, silver, fiat currencies, stocks and bonds, or pretty much anything.  Then, these notes could be transfered from one person to another anonymously.

Couple this with an ebay-like service that allows people to swap these virtual currencies.  Say, for example, that I have a gold note issued by a bank in South Africa.  Since taking delivery of the gold could be a problem, I trade my notes for notes issued by a bank in U.S.A.  Then, I can redeem those notes and have them FedEx me the gold (insured, of course).

This system would be Fed-proof, IRS-proof, FBI-proof and judgment-proof.  This system would protect the users against monetary inflation, making it Fed-proof.  Since nobody has a bossman ratting out their earnings, it is IRS-proof.  It is FBI and NSA proof because all transactions are encrypted and anonymous.  And, most importantly, it is judgment-proof because it is perfectly legal.

There are, at present, no laws that could be used to criminalize what I propose.  Laws against money-laundering, for example, do not apply because there is no way to prove that the money came from an illegal source, such as drug dealing.  Laws against tax-evasion do not apply either, because no taxes have ever been levied on imaginary currency.  In addition, if you had your day in court, you could defend yourself on First Amendment grounds.  Besides, international free trade agreements also have generous loopholes.

So what we are dealing with is anarcho-capitalism and wildcat banking on a global scale.  If not for my non-existant programming skills, I'd be forking a new project off BitCoin right now.

Anybody here know C++?

"As long as there are sovereign nations possessing great power, war is inevitable."

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@gabriel: Oh, man, you're begging for a flame-war.... ;-)

Of course, C++ and Perl are not even in the same solution-space... but I absolutely love Perl. Unfortunately, Perl has lost its roots with Perl6, which I think is going to be a fork, I don't think Perl5.x is ever going to be truly end-of-life'd, the code base is a large part of what makes Perl so powerful. Ruby and Python are Perl's closest relatives but they both lack the "down-and-dirty" quality of Perl5 that I fell in love with.

Clayton -

No worries, I'm just being inflammatory.  I write C/C++ (C#, and some assembly) for a living, so I have a certain affection for them :).  Now if there's any "God that Failed" book that should be written about a programming language, it's Ruby.  Not a fan.

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ama gi replied on Fri, Dec 4 2009 11:56 PM

nandnor:

In the long run the money creation will have to stop anyway, right? Otherwise the savings not generated through deferred consumption but through inflation will cause boom-busts anyway.

And bump for epic idea!

Thanks.  You flatter me.

Also, here is a Wikipedia article I'm not smart enough to understand, but might be of interest.

"As long as there are sovereign nations possessing great power, war is inevitable."

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a government could come up and ask where your money was coming from, and it could tax you on property (and legislate new taxes designed with this new reality in mind).
That would require a totalitarian government though, to enforce this: ie massive random raids into everyones homes and warehouses to check the price of their owned goods

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nandnor:
a government could come up and ask where your money was coming from, and it could tax you on property (and legislate new taxes designed with this new reality in mind).
That would require a totalitarian government though, to enforce this: ie massive random raids into everyones homes and warehouses to check the price of their owned goods
The laws already exist in the form of income tax, property tax and luxury tax. And the means to enforce the laws exist in the form of the IRS (and similar entities), search warrants and police officers. Of course they don't have the resources to enforce the law in every case, but if they saw a billionaire or large company suddenly stop all traceable financial transactions, there would be intense investigation and enforcement.

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NewLibertyStandard:
And the means to enforce the laws exist in the form of the IRS (and similar entities), search warrants and police officers. Of course they don't have the resources to enforce the law in every case, but if they saw a billionaire or large company suddenly stop all traceable financial transactions, there would be intense investigation and enforcement.

But the question, whom to search? At least on the consumer level, it seems like impossible to know if transactions arentlogged

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nandnor:
NewLibertyStandard:
And the means to enforce the laws exist in the form of the IRS (and similar entities), search warrants and police officers. Of course they don't have the resources to enforce the law in every case, but if they saw a billionaire or large company suddenly stop all traceable financial transactions, there would be intense investigation and enforcement.

But the question, whom to search? At least on the consumer level, it seems like impossible to know if transactions arentlogged

It's no different than having a job on the side that you don't report. There are many people who avoid paying their taxes. Some get caught and some don't. The IRS audit people who seem suspicious. Don't let your taxes look suspicious and you'll probably never be audited.

Disclaimer: I neither support nor condone tax evasion. I pay my taxes and so should you. Geeked

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NewLibertyStandard:

nandnor:
a government could come up and ask where your money was coming from, and it could tax you on property (and legislate new taxes designed with this new reality in mind).
That would require a totalitarian government though, to enforce this: ie massive random raids into everyones homes and warehouses to check the price of their owned goods
The laws already exist in the form of income tax, property tax and luxury tax. And the means to enforce the laws exist in the form of the IRS (and similar entities), search warrants and police officers. Of course they don't have the resources to enforce the law in every case, but if they saw a billionaire or large company suddenly stop all traceable financial transactions, there would be intense investigation and enforcement.

Two words: deniable encryption.

"As long as there are sovereign nations possessing great power, war is inevitable."

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AJ replied on Sun, Dec 6 2009 5:36 AM

Very interesting Wikipedia article. I'm not sure that applies to the concern about property taxes, but in any case that's probably a relatively minor worry in comparison to completely secret rendering of all remote services - that would be HUGE.

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I suppose that you could hide the digital money on an hidden partition of a hard drive.  Then it would be impossible to audit how much money you have in your possession--even if the hard drive was confiscated.

Of course, you don't want to lose your money if the hard drive is confiscated.  That is why you should have it backed up to the cloud.  You could store your money on your computer, and also store copies on your friends' computers.  Your friends would not be able to steal your money because it would be encrypted.

"As long as there are sovereign nations possessing great power, war is inevitable."

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AJ replied on Mon, Dec 7 2009 8:54 AM

No, yeah, your money would be just a unique identifier somewhere, it wouldn't have to be "stored" with you, just stored somewhere (or all over the place) in a way that only allows you to find/access and use it. There's also perfect forward secrecy...

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It's now possible to integrate Bitcoin with your own applications, like web shops or other services. The application programming interface is only included in the SVN sources atm, so you'll have to compile it yourself, ask someone to do it for you or wait for the next release which will be out soon.

Here's a list of services that currently accept Bitcoin. Join us and make the FED history! :)

It really helps if you can get web service providers or merchants accept BTC, as it will add to the value and stability of the currency. Starting to use a new currency gets exponentially easier as the number of people who already accept it increases.

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BitCoin is a terrible currency really.

It is infatiory at least in the beginning and it has no alterantive use or value as anything else then money.

The reason it works and has actually been able to create value from "nothing" only proves how utterly rotten our current financial systems and government meddling in people lives is.

Given how the world looks today BitCoin is not actually creating value from nothing. Anonymous transactions provided through a decentralized system where no one can control or monitor anything has tremendous value today. Even with gold based digital currency you have the problem of one centralized authority and the existance of a physical commodity which even if the money authority is trusted is always voulnerable to state control and seizure.

But in a free world I don't think there would be any demand for a service like BitCoin and it wouldn't be able to obtain a value.

Escaping Leviathan - regardless of public opinion

"Democracy is the road to socialism." - Karl Marx

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One day, while I was learning about cipherspace, I discovered BitCoin. BitCoin is a completely decentralized, anonymous online monetary system that relies on a distributed database to facilitate transactions. The creator put a great deal of effort into ensuring that the system is secure and reliable. Unfortunately, there are no real assets backing he currency of BitCoin (and no coercive government backing it either). Thus ends BitCoin.

I can imagine, though, a system like BitCoin that allows people to write promissory notes and sign them with an RSA digital signature (to prevent couterfeiting). These promissory notes could be backed by gold, silver, fiat currencies, stocks and bonds, or pretty much anything. Then, these notes could be transfered from one person to another anonymously.

Couple this with an ebay-like service that allows people to swap these virtual currencies. Say, for example, that I have a gold note issued by a bank in South Africa. Since taking delivery of the gold could be a problem, I trade my notes for notes issued by a bank in U.S.A. Then, I can redeem those notes and have them FedEx me the gold (insured, of course).

This system would be Fed-proof, IRS-proof, FBI-proof and judgment-proof. This system would protect the users against monetary inflation, making it Fed-proof. Since nobody has a bossman ratting out their earnings, it is IRS-proof. It is FBI and NSA proof because all transactions are encrypted and anonymous. And, most importantly, it is judgment-proof because it is perfectly legal.

There are, at present, no laws that could be used to criminalize what I propose. Laws against money-laundering, for example, do not apply because there is no way to prove that the money came from an illegal source, such as drug dealing. Laws against tax-evasion do not apply either, because no taxes have ever been levied on imaginary currency. In addition, if you had your day in court, you could defend yourself on First Amendment grounds. Besides, international free trade agreements also have generous loopholes.

So what we are dealing with is anarcho-capitalism and wildcat banking on a global scale. If not for my non-existant programming skills, I'd be forking a new project off BitCoin right now.

Anybody here know C++?

One concern with the system is its sheer complexity... and complexity is always the enemy of security. The other concern is that the author does not address the regression theorem... from whence do these coins obtain their value? I do not think an unbacked token/paper currency has ever existed without State assistance. So, for bitcoins to ever be used, they will require a reserve backing. This raises a rat's nest of problems:

- Where will reserves be stored and secured?
- How will the reserves be audited?
- State-resistance goes right out the window since the answers to the previous two questions can never preclude State invasion (choose any two: auditing, security, existence of a State... you can't have all three).
- How will bitcoins get their initial value? What if people want different kinds of backing? If a bitcoin is a bitcoin, then there is no way to have a variety of reserve backings, i.e. dollars or Yen or gold or silver, etc.

I've thought about this problem in some depth - I even designed my own currency system though it was unfortunately not as distributed as this bitcoin system and started prototyping it. But then I realized the "iron triangle" of State/security/auditing cannot be broken. Any money substitute must have real reserves as backing. But reserves must be audited or the money substitute is infinitely susceptible to inflation (issue of fiduciary media, that is, unbacked money substitutes). But if your reserves are audited, they are ever-vulnerable to State seizure. There is no "digital secession" option when it comes to money.

I think the path most likely to succeed is for someone to buy/open their own money transmission business then use some sort of anonymous digital currency token transfer system internally. while complying with all the know-your-customer (KYC) and other PATRIOT Act/OECD regs externally. By eliminating the needless internal bureaucracy for maintaining the communications networks, as much as a 50% reduction in operating costs may be able to be realized and this could form the competitive advantage for expanding the business model. If the model was designed from the outset to be open-source and extensible - somewhat like this bitcoin system - you could open the network to anonymous access once you've expanded enough to afford the lawyers and diversification of political risk by co-locating in many nations that would be necessary to survive the all-out war that the OECD financial establishment would launch against you once they realized what you were up to.

I'm highly skeptical of any other route.

Clayton -

P.S. I do know C++ but I wrote my prototype in Perl... C++ == yuck; ;-)

http://voluntaryistreader.wordpress.com
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P.S. I do know C++ but I wrote my prototype in Perl... C++ == yuck; ;-)

The proposition that C++ is yuck may be true.  However, C++ as compared to Perl, C++ is superior.  We need to rehabilitate C++ vis-a-vis Perl.  What we need is a, Perl: The God that Failed book.

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@gabriel: Oh, man, you're begging for a flame-war.... ;-)

Of course, C++ and Perl are not even in the same solution-space... but I absolutely love Perl. Unfortunately, Perl has lost its roots with Perl6, which I think is going to be a fork, I don't think Perl5.x is ever going to be truly end-of-life'd, the code base is a large part of what makes Perl so powerful. Ruby and Python are Perl's closest relatives but they both lack the "down-and-dirty" quality of Perl5 that I fell in love with.

Clayton -

http://voluntaryistreader.wordpress.com
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@gabriel: Oh, man, you're begging for a flame-war.... ;-)

Of course, C++ and Perl are not even in the same solution-space... but I absolutely love Perl. Unfortunately, Perl has lost its roots with Perl6, which I think is going to be a fork, I don't think Perl5.x is ever going to be truly end-of-life'd, the code base is a large part of what makes Perl so powerful. Ruby and Python are Perl's closest relatives but they both lack the "down-and-dirty" quality of Perl5 that I fell in love with.

Clayton -

No worries, I'm just being inflammatory.  I write C/C++ (C#, and some assembly) for a living, so I have a certain affection for them :).  Now if there's any "God that Failed" book that should be written about a programming language, it's Ruby.  Not a fan.

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