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Will Bitcoin Go the Same Way as Liberty Reserve?
Virtual currencies were hailed as revolutions. They were the way forward., the way to overhaul the system and the way to replace the Dollar, Sterling, the Euro and the rest of them. But, just last week Liberty Reserve was closed down for illicit transactions and money-laundering activities that could have nothing more than repercussions for the rest of the companies living quietly in the auspices of cyberspace doing more or less the same sort of activity.
Now, it’s Bitcoin that has its knees knocking. Bitcoin is in the same sort of business as Liberty Reserve. It’s a cryptocurrency (digital currency, with no inflation). It has been around for a few years now (since 2009) and it’s now trying to get its act together and prepare the rocky road ahead just in case it goes the same way as Liberty Reserve and gets bumped out of the market by being busted. How? It has just announced that it will ask for all account holders to prove their identities.
Liberty Reserve and Bitcoin are not twin brothers. There are indeed similarities but they are not exactly the same. Bitcoin is not managed by a central authority, as was the case with Liberty Reserve. Bitcoins are exchanged and traded on networks that are peer-to-peer.
Liberty Reserve Effect
Liberty Reserve’s forced closing came as a welcome moment for Bitcoin. Trading increased as news broke. The value of a traded Bitcoin increased significantly. They had already seen a rise in their value when there was a swing from January to April 2013, with an increase from $13 to $190. This was in the face of the rising European sovereign-debt crisis and the Cypriot financial crisis, in particular. Bitcoin currently has a total market value of almost $1 billion. People were wary of banks and Bitcoin saw a massive surge in the value of its exchange rate. Bitcoin became the darling of the economic experts and businesspeople around the world as their confidence and trust in the banking sector drip-dried. Being the star of the moment, however temporary it might be, is like having your name up there in red lights, and flashing to boot.
Bitcoin Solution
It’s doubtful that Bitcoin will suffer from the Liberty Reserve scandal and it’s doubtful that they will go the same way. But, running checks on customers is just what people hate the most, isn’t it? Aren’t we always wary of companies that want to know too much information about us and that need to know who, when, why and what? Isn’t that like Big Brother of Orwellian fame?
Will it work?
One thing is for sure, if Bitcoin’s aim is to save their demise and stop the criminal activity that may or may not be going through their exchange doors, then the criminals will pull the plugs and move on somewhere else? If the customers are bona fide ones, they too might be dead set against having too much information shared over the tanoid? Whatever happens, perhaps the end is nigh, anyhow, for Bitcoin.
Bitcoin: Right Choice?
Maybe their only attraction for the moment is that they are still a good hedge against inflationary pressure. The digital currency is a limited one (22 million bitcoins, of which half are in circulation) and so inflation can’t bring Bitcoin holders down as other currencies might. At least, that’s the way things stand right now. Things are never set in stone though, are they? Their value is really non-existent and depends very much on whether people actually want to use them or not. Pull out, the price will drop. A downside might be that like any currency Bitcoins can be stolen as they can be sold on to someone else and exchanged for real currencies. On April 3rd 2013, Instawallet was hacked and 35, 000 of the things were swiped (worth $4.6 million).
Bitcoin is a stateless currency and that should be telling us something about how we are prepared to use money in exchange transactions today. It makes for interesting analysis of how currencies are driven by confidence and that goes for stateless or non-stateless currencies, wherever they are. What’s happening to Bitcoin is no different to what’s happening to the Greenback or the Euro these days. Lose confidence and people pull out.
Originally posted Will Bitcoin Go the Same Way as Liberty Reserve?
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You studied it in detail?
LOL!!!
> Most Bitcoin users are not using tor or a VPN.
The ones that matter do. If you're not savvy enough to use a VPN, you probably won't be savvy enough to use Bitcoin successfully.
That is actually untrue. Just look at how the Bitcoin community gathers around mtgox. That is proof that even Bitcoin users will generally give in to centralization and convenience. The problem is that most Bitcoin users do not understand the math and algorithms that make Bitcoin so damn cool. They do not understand they are giving all that up by using mtgox.
Can Bitcoin survive with a small number of sophisticated users? Well I suppose so. Maybe. But remember that bitcoins have value when they are widely accepted in trade, not when they are used by us geeks only.
This is very linear thinking.
When Mt. Gox popularized being an exchange, everyone jumped on board (well, almost everyone). But they use the SWIFT system, and that implies that the banks they work with will enforce KYC.
Now the illusion of the trusted party is shattered. Now you see the push for a Ripple-like network infrastructure.
Things evolve. The exchanges are, and always have been, the weak link. Now everyone sees why. Now the platform evolves.
The number of users is growing. The level of sophistication is growing. The number of well funded organizations participating is growing...
All TPTB can do is push legislation - and they do so at their own risk. If they ban BTC outright, it will be as effective as their War on Drugs.
If they ban BTC outright, it will be as effective as their War on Drugs.
Which won't prevent the goons from knocking down your door at 3am and hauling off you and all your electronics because some website you bought from using BTC was subpeonaed by the FBI for their customer list.
> bitcoins have value when they are widely accepted in trade, not when they are used by us geeks only.
Bitcoin aren't widely used now and they have value. They had value two years ago when even fewer people were using them.
I don't care how much value they have in fiat. To me, their value is in instant transactions when I find something worth getting for my bitcoins.
Yeah - the way they shut down bittorrent, right?
Mine's encrypted in a VPN connection. You can run bitcoind behind Tor - there's no way to shut it down.
Most people aren't going to run their Bitcoin client through tor. If you think a mass acceptance of tor is the answer then you are delusional. Shutting down Bitcoin is as simple as filtering for the protocol at Internet choke points. That'll be the end of the road for 99% of Bitcoin users.
There could be an arms race, but those who have large amounts of value in Bitcoin and those relying on it for their livelihood will fund the countermeasures that will keep it alive. There's a half dozen approaches to help lessen the communications friction should port 8333 become blocked or filtered.
You can't filter for Bitcoin if it's in an encrypted tunnel, the packets just contain hashed data that can't be read without the encryption key.
Any authority would lose a battle of escalation here - govt. spends a load on hardware to filter for Bitcoin VS. some developer bolts on an end-to-end tunneling protocol for Bitcoin transactions.
Oh yes you can. I can explain how the traffic can be decrypted when you control a node on the network, but lets go with your argument that it can't be decrypted. You can still detect Bitcoin traffic without decrypting it. That is a strategy that his been used since World War II. You can infer things about traffic that you cannot decrypt.
What surprises me is that practically everyone assumes Bitcoin will be used over the Internet. I see it as most useful when it is not used in conjunction with the Internet.
Of course, your service provider (and for that matter any intermediary link/man-in-the-middle) can easily proxy SSL certs (see https://www.grc.com/fingerprints.htm), and key exchange systems are inherently weak in this way too. Agree with your second point, ports/applications/IPs etc, provide just such easy inference.
But my point is that when a software solution for real end-to-end, non key exchange en/decrypt is cheap to produce and cheap/free to distribute, vs. the cost of equipment to break that encryption, the snooping party has the odds stacked against them.
Physical Bitcoins are interesting (and look very cool), it would be nice to have a currency that requires 'activation' too.
*As a point of interest, the UK govt's 'blunt instrument' approach to these encryption issues was to make it possible to be imprisoned for not surrendering an encryption key. How nice of them.
"*As a point of interest, the UK govt's 'blunt instrument' approach to these encryption issues was to make it possible to be imprisoned for not surrendering an encryption key. How nice of them."
Think about that for a moment. If they outlaw bitcoins in one country you can take them to a freer country. But your bitcoin transactions lose value as more and more of the network is isolated. It's not like gold. A Bitcoin cannot be trusted in isolation. The protocol verifies it with a sufficiently large portion of the Bitcoin network. So if you shutdown enough users simply by passing a law, and most of those users permanently go dark, then the Bitcoin chain can easily become fragmented. Then you're screwed.
Gold does not have this problem. If gold is outlawed where you live then you can just take it to another country and it is immediately recognized without verification from a larger network.
The vulnerabilities of Bitcoin are real.
They cannot ban the running of the protocol unless they declare virtual currencies money.
If I run a Bitcoin node I don't need to trade or use Bitcoin. I can simply run a service node for others.
As long as there is 1 free country in the world, people can hold their Bit oin infra there.
There is no developed country that managed to stop Internet traffic of any particular kind. It is laughable to think that the governments would attempt to stop/block/attack Bitcoin and yet leave email and Web functional. If SSL is monitored, who will want to so anything over the Internet?
Your theories about bitcoin are stupid. Please stop polluting the comments area.
That's very true.
One of my early misgivings was it's exclusionist nature, the other side of the same coin. Why should developing nations be excluded from global trade just because they lack the infrastructure or access to technology that we enjoy? Wasn't it economic elitism that got us in this mess in the first place?
"One of my early misgivings was it's exclusionist nature, the other side of the same coin. Why should developing nations be excluded from global trade just because they lack the infrastructure or access to technology that we enjoy?"
Seems like I've heard this argument on the nature of "money" before...oh yeah, it was me...lol.
Its just one of the reasons why I've always said bitcoin is not money...its a pipe for money. Real money isn't encumbered by anything. Its readily recognizable, universally accepted, doesn't require an account, a card, a device, password, encryption, internet, electicity...nothing.
And it certainly doesn't require a ham handed marketing campaign to convince people to digitize their labor for ease of control ;-)
Wrong. Markets adapt to change. When people no longer want to hold bad electronic fiat, they will find alternatives. Govt will try to make it difficult, but they more they restrict the more valuable the market will become. This is the history of black markets.
Today, the world is more connected and needs a private, electronic currency. There is no other contender that doesn't rely on a "trusted" 3rd party. Cryptocurrencies are the future.
So what happens if fiat blows up before bitcoin?
Exactly ! Thanks :o) Fiat is more ponzi than Bitcoin.
The criminals here are the governments and central banks who are attacking these free-market currencies. The so-called "crime" of money laundering is no crime at all, it is simply people avoiding government interference in their financial activities, which they have every right to do. These technologies are way ahead of the state's pathetic attempts to control them. These attacks will only force those who wish to use private currencies to go into the underground economy, which is the only honest economy left.
I don't see how the CBs will allow this sort of thing. Controlling currency is key to them controlling everything. They'll come up with excuses to shut them down, and take the opportunity to put to rest similar such ventures in the future. I wonder if in a year from now there will be any of these exchanges running above-ground.
I know, they won't care they will come up with something and then slam them.
If bank or virtual currency is transact for criminal, then what of bystander to breath same air as criminal? Drink same water? Amerika, wake up or be screw!
It's interesting to read "Bitcoin did this" and "Bitcoin announced that" ... in other news, Gold announced that it is launching a 1,000 ounce advertising campaign, aimed at popularizing Silver.
Western Freedom is FIJCKING FARCE! As long as sleeping sheeple is tow line, life is Potyomkinski (Potemkin for NYT) Village, but when political financial super class is hungry, reach over and is to pluck sheep from safe suburban residence and pop in mouth. This also is true for Gold and real wealth. If Bit Coin is not serve political financial super class, amen to Bit Coin. Sure, not is direct make illegal, but is use RICO and Patriot Act to shut down. Homeland Security is make Stasi appear as Boy Scouting Troop.