Why Bitcoin is Important

Capitalist Exploits's picture

By: Chris Tell at http://capitalistexploits.at/

“Bitcoin is the anti currency”; “Bitcoin, the currency of the future”; the “currency of the resistance”; “Bitcoin is a Fad”; “Bitcoin is a fraud”; “Bitcoin is a currency for drug dealers,  kiddy fiddlers and terrorists.”

These are some of the opinions I've heard thrown around when discussing Bitcoin.

I have no particularly original insights into Bitcoin, and I won't pretend to understand the technology behind it. I can barely understand how my coffee machine makes such great coffee. This is the complexity of the world.

Firstly, let me say that we think Bitcoin is "cool". I love disruptive technologies. 5000 years ago shipping changed the world. I discussed this in depth in an article entitled Predicting Prosperity. I alluded to the “Guano age” of the 1800's which was destroyed by the advent of nitrate-based fertilizers.

The Internet, at least the Internet that most of us know has only really existed since the mid-90's, and even then VOIP and data streaming were far from common. Technologies which we take for granted today have often only been around for less than a decade. Yet we're all comfortable enough with them.

In the 1990's the first fibre optic cables where being laid allowing for what would become the world wide web. Who could have known who was going to profit and who was going to fail?

When a friend introduced us to Bitcoin nearly 4 years ago now we were busy, looked quickly at it, decided we didn't understand it and dismissed it as quackery of some kind. This despite our friend being a man we hold in very high regard. Hindsight, as they say is 20:20. It was still very early days in Bitcoin history.

Fast forward to today and we've spent more time learning about digital currency (not Bitcoin per se) and this is how we see it.

The Mania


Markets, especially those affected by revolutionary technology exhibit distinct patterns. This is because human beings really don't change.

Circumstances change, technology changes, environment changes but human behaviour never changes.

I found the chart below from Gartner. It provides us with a visual image of what I'm talking about.

hype cycle

The crazy, silly hype that existed is now over, and I think we're in the third stage.

Please note that I'm not a Bitcoin bull or bear. I think people miss the point behind Bitcoin and that point is simply that Bitcoin is at its core a technology. That technology has been replicated to a large extent with dozens of other digital currencies. As such there is no particular moat around Bitcoin other than first mover advantage. First mover advantage in technology is not always all it's cracked up to be, heck Netscape had first mover advantage too, right?

The value lies not in Bitcoin but in the technology. Technology is a market I can understand and play in. Trading, or rather gambling on what price a Bitcoin should trade for isn't.

How useful then is the technology?

As Goldman Sachs IT analyst Roman Leal argues:

“in 2013 money transfer fees would have fallen by 90% if Bitcoin had been used. Global transaction fees at retail point of sale, meanwhile, were $260bn on over $10trn of sales. Using Bitcoin those fees fall by almost $150bn to $104bn."

I don't care who you are, these sorts of numbers are compelling and the odds favour this technology being utilized in the future.

I believe that the technology is here to stay. That doesn't mean that Bitcoin is here to stay. I have no idea but I do think that the cat is out of the bag in terms of the technology.

How Best to Play It

Investing in core technology (note: I said technology, not Bitcoin) companies that are building the infrastructure for digital currencies is right now the best way to play the odds game.

The market is currently disillusioned with the price of Bitcoin. It's collapsed from well over  $1,000 to just over $400 today. The companies we've been speaking to, who not 6 months ago had all the arrogance of a pimply-faced teenager who'd found the powers of tequila and testosterone, today sport far humbler valuations!

The sector is ripe for discerning investment and we're actively exploring private equity in this sector. Our friends at Pathfinder Capital have setup the first FSA regulated crypto technology fund. We think they are on the right track! Target the companies building the ecosystem and the platforms that will drive innovation. Let others try to figure out which "currency unit" will win.

- Chris

"Any sufficiently advanced technology is indistinguishable from magic." - Arthur C. Clarke

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logicalman's picture

I guess you don't come here often.

Bindar Dundat's picture

While you are moaning on the fxxking ground I just saw this and thought it was quite appropriate.

 

"The less people know about bitcoin, the more they want to ban it. That’s according to a Reason-Rupe survey, which found that 56% of those in the survey knew “nothing at all” about bitcoin.

With only 19% claiming to know “a lot” or “some” about bitcoin, the results demonstrate just how little general understanding there is about bitcoin, despite the increase in media coverage.

A Bloomberg poll in December 2013 found 46% of people didn’t know what bitcoin is, with 6% guessing it is an Xbox game. A UK survey in February found a similar figure for awareness of the digital currency."

sessinpo's picture

Bindar Dundat     "The less people know about bitcoin, the more they want to ban it. That’s according to a Reason-Rupe survey, which found that 56% of those in the survey knew “nothing at all” about bitcoin.

---

It's not about whether bitcoin should be allowed. It's about the viability of it(Millennials, the Tech-savvy, Independents, and Libertarians Say Bitcoin Should Be Allowed)

About the best statement from the poll YOU cite is: Bitcoin’s Ideological Experiment

We even find that posters here, who claim to be knowledgeable about bitcoin, end up not knowing enough. Quite frankly, I don't think they want to know it all. They only want to know enough to support their emotional position to support bitcoin.

I could care less. I have no dog in the race.

 

 

Bindar Dundat's picture

A U.S. Congressman  even gets it -- why not you mouth?

 

"US Congressman Steve Stockman of Texas is preparing to introduce a new bill, the ‘Virtual Currency Tax Reform Act’, which, if passed, would tax bitcoins as currency instead of property.

Currently, the US Internal Revenue Service (IRS) views bitcoin and other digital currencies as property. When someone sells their bitcoin or makes a purchase in bitcoin, they are subject to a 15% capital gains tax. Any wages paid out in digital currencies must also be reported to federal tax authorities."

 

You sir are a blizzard of untruths and misunderstandings!

logicalman's picture

If it's taxable, it can't be anonymous, can it?

And vice versa.

Hmmm....

sessinpo's picture

indar Dundat      A U.S. Congressman  even gets it -- why not you mouth? "US Congressman Steve Stockman of Texas is preparing to introduce a new bill, the ‘Virtual Currency Tax Reform Act’, which, if passed, would tax bitcoins as currency instead of property.

---

You are proving the fallacies of bitcoin and don't even know it.

Don't  you know that one of the main selling points of bitcoin was to be anonymous. Now how can one tax such an anonymous user, currency or property?

stacking12321's picture

i would encourage you to use your brain a little bit and reason this problem out.

and bitcoin does not have any "selling points", it's not some tv ad, or some popularity contest. it's merely a technology - use it, or don't, no one cares.

regarding anonymity - a bitcoin account can be set up and used anonymously, with no way to trace it to a specific identity, if you take the time and care to make it so.

or, you can link it to a bank account, use it to make purchases that ship to your home address, etc, use it on the same computer you always use, with the same mac address, and you can assume in this case there is no anonymity. in this latter case, you would probably be more likely to be concerned about tax consequences.

but both are valid ways, and in fact you can have 1 of each.

 

Bindar Dundat's picture

BAN the DOLLAR!

 

March 5, 2014

Dear Secretary Lew, Chairwoman Yellen, Comptroller Curry, Acting Chairman Wetjen, Chairman Gruenberg, Chairwoman White:

I write today to express my concerns about United States dollar bills. The exchange of dollar bills, including high denomination bills, is currently unregulated and has allowed users to participate in illicit activity, while also being highly subject to forgery, theft, and loss. For the reasons outlined below, I urge regulators to take immediate and appropriate action to limit the use of dollar bills.

By way of background, a physical dollar bill is a printed version of a dollar note issued by the Federal Reserve and backed by the ephemeral “full faith and credit” of the United States. Dollar bills have gained notoriety in relation to illegal transactions; suitcases full of dollars used for illegal transactions were recently featured in popular movies such as American Hustle and Dallas Buyers Club, as well as the gangster classic, Scarface, among others. Dollar bills are present in nearly all major drug busts in the United States and many abroad. According to the U.S. Department of Justice study, “Crime in the United States,” more than $1 billion in cash was stolen in 2012, of which less than 3% was recovered. The United States’ Dollar was present by the truck load in Saddam Hussein’s compound, by the carload when Noriega was arrested for drug trafficking, and by the suitcase full in the Watergate case. 

Unlike digital currencies, which are carbon neutral allowing us to breathe cleaner air, each dollar bill is manufactured from virgin materials like cotton and linen, which go through extensive treatment and processing. Last year, the Federal Reserve had to destroy $3 billion worth of $100 bills after a “printing error.” Certainly this cannot be the greenest currency.

Printed pieces of paper can fit in a person’s pocket and can be given to another person without any government oversight. Dollar bills are not only a store of value but also a method for transferring that value. This also means that dollar bills allow for anonymous and irreversible transactions.

The very features of dollar bills, such as anonymous transactions, have created ubiquitous uses from drug purchases, to hit men, to prostitutes, as dollar bills are attractive to criminals who are able to disguise their actions from law enforcement. Due to the dollar bills’ anonymity, the dollar bill market has been extremely susceptible to forgers, tax fraud, criminal cartels, and armed robbers stealing millions of dollars from their legitimate owners. Anonymity, combined with a dollar bills’ ability to finalize transactions quickly, makes it very difficult, if not impossible, to reverse fraudulent transactions.

Many of our foreign counterparts already understand the wide range of problems that physical currencies can have. Many physical currencies have enormous price fluctuations, and even experience deflation.  20 years ago Brazil had an inflation rate of 6281%.  In 4 years (2001 to 2005), the Turkish Lira went from 1,650,000: $1 to 1.29 to $1. In 2009, Zimbabwe discontinued it’s dollar. Before it was eliminated, the Zimbabwe dollar was the least valuable currency in the world and their central bank even issued a $100 trillion dollar banknote. A person would starve on a billion Zimbabwe dollars and it took an entire wheelbarrow full of $100 billion dollars in notes to purchase a loaf of bread.

The clear use of dollar bills for transacting in illegal goods, anonymous transactions, tax fraud, and services or speculative gambling make me wary of their use. Before the United States gets too far behind the curve on this important topic, I urge the regulators to work together, act quickly, and prohibit this dangerous currency from harming hard-working Americans.

Sincerely,

Jared Polis
Member of Congress ?

Ralph Spoilsport's picture

Paging fonestar...you're on.

fonestar's picture

Paging fonestar...you're on.

 

FONESTARD!!!!!!

SILVERGEDDON's picture

HEY,  PHONEY - HOW COME YOU AREN'T JERKING YOURSELF OFF ALL OVER THIS ARTICLE LIKE AN AMWAY SALESMAN AT A LAUNDROMAT ?

Exponere Mendaces's picture

@Ralph

And you think that only fonestar is a supporter?

It doesn't matter if the backwaters of financial blogs support Bitcoin. If the idea is sound, it won't need the limited support from this site. Besides, most people here are braying jackasses that repeat the same old shit about "stacking" and "shit hitting the fan" and "illuminati" and "Agenda blah blah"

Its a fucking tinfoil conference room jacked into its own switch port, broadcasting the ever increasing howl of self-indulgent feedback. Hey, did you know that the Fed can't print forever? Oh that's right, its article #18421 this week.

Hey, did you know that after periods of great capital misallocation that shit falls apart? Well goddamn, here's article #4854 on that very subject.

ZH provides a service to the new and interesting topics it explores, but for the predictable (as in frequency) of the articles waiting for the world to burn, that shit has gotten really long in the fucking tooth, and I haven't even been here as long as some of you poor sods have been.

 

Toolshed's picture

What you bitcultists seem to be unable to grasp is that regardless of whether bitcoin's underlying tech is just swell, or not, simply does not matter in our completely rigged and controlled global financial system. TPTB will either gain control of it, thereby negating it's benefits, or destroy it. Period. Now try and get over it like the rest of us already have.

Ralph Spoilsport's picture

Seems like you have a beef with the overall readership of ZH. That's your problem, not mine. fonestar is okay in my book and he gives as good as he gets with the readership here. And yes, I'm aware that there are quite a few BTC fans here besides fonestar. This is a good thing since the arguments that flare up are both entertaining and informative. I don't see a problem here.

That's not my red arrow BTW.

donsluck's picture

The red arrow is mine. I have a problem with people who insult everyone on the very forum they're on.

james.connolly's picture

The best way to play BITCOIN, is to NOT play BITCOIN.

Friends don't let friends financially fuck themselves.

Unpopular Truth's picture

you must be referring to owing bitcoin as an asset. This is indeed risky.

Yet, if buyer protection is not needed, you must agree that transaction costs are much lower. And you NEVER need to own any to use it

Bindar Dundat's picture

Well written and clearly understood article. I have been studying the technology for 18 months and I am convinced it is going to be a disruptive but positive technology.  .My background is both physics and business.

 

Bitcoin as a currency may or may not become a useful tool but the decentralized synchronized global ledger will change how we define ownership of just about everything. Bitcoin the invention is spectacularly more important then bitcoin the currency.

 

MeelionDollerBogus's picture

"decentralized synchronized global ledger will change how we define ownership of just about everything. "

Ya, it means no more safe, anonymous storage like with gold or silver.

That's a bad thing.

Dollars & gold don't work the same way as each other at all yet both have the anonymity of ZERO ledger. Ledgers are bad. Security rises from the lack of one, not having one.

gina distrusts gov's picture

The difficulty I see in any digital currency is the dependance on the power supply and the net being functional. I have had the annoyance of having the ATM being dead not to see the dreadful state of the grid in the u.s. may be shortsighted if your dependent on it for spendable cash

james.connolly's picture

https://bitcoin.org/bitcoin.pdf

Here is the PEPSI challenge for you, read the original Satoshi paper above, and then come back and tell me what is new, or orginal in this paper.

Knowing a little about physics and business, don't have shit to do with computer science.

The ball is in your court. You tell us what 'invention' that makes  BITCOIN, as defined in this paper as 'new' that wasn't known 20+ years earlier by anybody trained ( MS or PHD ) in discrete computation.

BandGap's picture

Why does this have to be "new" or "original"? Inventions, discoveries can sit around for decades before finding practical uses.

Viagra was developed for heart angina, nail guns used to be used to build houses. It's all in the inventive ways old applications are now put to a novel use!

Dewey Cheatum Howe's picture

Yep remember Edison's electric pen. Most people don't because it ultimately wasn't a successful application of the idea. It was designed to create stencils for ink rolling mass printing.  Most people do know what it's successor since it lives on today. It was retooled to use needles and ink and become the modern day tattoo gun. The basic design is still in use to this day.

Block-chain technology has lots of other uses besides crypto-currency applications.

 

Bindar Dundat's picture

Actually you are 100% wrong!  The network double spend problem is one that has been bugging network engineers for quite a while.

The technical problem is  called it the "Byzantine fault tolerance" dilema  that has eluded a solution until the white paper came out.   The bitcoin blockchain of hashtags solves that problerm nicely and  ensures that the global network accepts a change in ownership of a coin or any other commodity.  Look it up!

http://en.wikipedia.org/wiki/Byzantine_fault_tolerance

There --  round one to me -- prove me wrong turkey head!

sessinpo's picture

Any currency dependent on electricity has an obvious fundamental flaw.

MeelionDollerBogus's picture

Actually use of PGP solved the double-spend problem in 1993. Using signed keys & messages and having a web of trust, just like refiners & test-kit manufacturers and reliable movers (buy/sell) of bullion, just like test-kits for counterfeit dollars, double-spend is of no concern.

The blockchain is a problem: it exposes every transaction which ruins the most important part of real money next to tangible atomic use: secrecy.

Mashuri's picture

Public/private key cryptography did not solve the double-spend problem. Transaction tracking had to be centralized before bitcoin. Look up hash cash as an example.

MeelionDollerBogus's picture

Incorrect. Validation of keys & message contents did not in any way require centralization and therefore no double-spending. No other special serial numbers or hashes or ledger is required for any transactions using PGP using anything as money and the pgp message is merely the debt-note, like bitcoin is a debt note, for tangible value as a proxy.

One World Mafia's picture

NSA backdoors into its cryptographics are the problem. Take a look at Bitcoin cryptography protecting mining and your private keys:

SHA-256 is NSA designed and the NSA does NOT release cryptography into the wild without a backdoor.

SHA-256 and RIPEMD160 are hackable:

https://blog.skullsecurity.org/2012/everything-you-need-to-know-about-ha...

http://www.infowars.com/bitcoin-revolutionary-game-changer-or-trojan-horse/

...and secpk1 which is not fully rigid, leaving room for an NSA backdoor.

http://safecurves.cr.yp.to/rigid.html

CH1's picture

SHA-256 is NSA designed and the NSA...

This has been refuted over and over.

Fucking troll bot.

NickVegas's picture

Yup, that is the little secret you are paid to lie about. The NSA can crack and steal your "shitcoins" whenever they feel the need. Looks like some Indians already got off the reservation, see Mt. Gox and all the lies behind the "official story".

Bunga Bunga's picture

The government can make your gold unusable as well.

james.connolly's picture

The problem here is  that same old shill's are still pushing the same old snake-oil.

The solution is we need a REAL 'peoples' crypto-currency, and BTC dont' cut the smell test.

How do we do it ?

1.) It must be P2P just like when we all share/steal music and movies, REAL FUCK P2P, the problem with BTC is the exchanges and minor's, they NEED to be executed with extreme predjudice.

2.) We need real encryption, like PGP-4096 that is impossible for NSA to break, and we need to control, out of the hand's of the NSA.

3.) Trust is the issue of Satoshi's paper (https://bitcoin.org/bitcoin.pdf) I suggest any student of this shit read the mother-paper, in order to have trust, nobody can control over 1% of BTC,... with BTC you have a few people controlling 90% on the mining and the exchange end, ... this right there amongst a dozen other things is WHY BTC sucks cock.

>>

So how do we fix BTC?

We need a real group to step forward someone like Stallman free software or somebody who can't be bought, probably going to be a RUSSIAN. We need a real open-source that has no ties to the CIA/MOSSAD, that is a tough one, given that probably 90% of the commenters/posters here work for the company as contractors.

But when a real crypto-currency comes out for the PEOPLE, I will know it when I see it, and bitcoin ain't it,

 

Maybe it will come from CHINA, maybe India, but it has to come from somebody who hates money, who hates wealth, who truly doesn't want a fucking thing to do with power, that his/her only goal is to destroy the PTB.

Now with BTC, it came from PTB and that is the fucking problem.

 

Rock On Roger's picture

Crypto computer crap is bullshit.

I like the feel of mud between my toes.

james.connolly's picture

Satoshi's premise of BTC 1.0 was that no person or club, would ever have more than 51%, that was broken early on, and the MINERS always maintained +60% control, so essentially the BTC 1.0 as envisioned was broken from 2010 all the way til present.

Then you had Mt-Gox with +60% of ingress/egress under control, and that was just the frosting on the cake to kill bitcoin.

The ONLY way to ensure trust is to have an anti-monopoly model, where nobody can have a monopoly. A PURE P2P model can also solve this problem.

The MORAL of BTC 1.0 is that EXCHANGES MUST DIE, and MINER's MUST DIE, MT-GOX essentially self destructed on that level, now its time to see some miners 'suicide'.

Of course also BTC 2.0 should contained NO Encryption endorsed by the NSA, which means it needs to be PGP-8192 something that the NSA hates with a passion.

james.connolly's picture

Your right, that's why its best to live in the jungle, then all is real.

But the USD sadly is also 'crypto-crap', but issued controlled by the DEVIL, and I use that word to infer that the worst ASSHOLE's on earth control the current crypto USD.

Given the reality of FIAT-FAUX (USD & wannabe's), why not have a PEOPLES FIAT, where nobody can be a billionaires, and people can exchange internationally, as even those in live in the jungle need to trade with city folk and vice versa.

*

Going beyond Satoshi's premise of "TRUST", the next level of crtypo-currency will have to be addressing the issue of MONOPOLY, Satoshi in his orginal PAPER simply 'assumed' that TRUST would be present in the NERD population, but sadly not all nerds use their brain or the heart, some only use their dicks.

My argument is not only must BTC 2.0 be REAL P2P, but it also must prevent anyone from having more than 0.01%, which means that a real ID/DNA fingerprint will be probably required to implement it, nobody ever said this shit was going to  be 'private'.

USD ain't private either if you move it on computer they know, and if you touch it, they got your dna and fingerprints. When you get it from the ATM they got your mug photographed and most big-bills have RFID, so they can track it,..

 

 

 

donsluck's picture

You had me going until the last paragraph. You really should have stopped while you were ahead.

james.connolly's picture

PLAY with CRYPTO-CURRENCY? THen you automatically lose your privacy. I was addressing the 'privacy' issue, my point is that there is no such thing as PRIVACY, it doesn't exist. It only exists if you hide in a tin-foil box, and never leave, if you go outside you lose privacy, cameras are everywhere.

If you use a public toilet you have lost privacy, if you touch money with an un-gloved hand you have lost privacy. If you use ATM you have lost privacy, from the time you get the money out of an ATM it tracks you forever the money has a RFID and its tied to you until the next time it returns to a bank, to be associated with a new person.

> If you use a COMPUTER there can never be privacy, as soon as you touch a keyboard your sending out EMT. If you connect to the internet, then they know all, all opearting systems call home to mother. Hell even my noew GOOGLE TV box continues to use my WIFI, even after you tell turn WIFI OFF, the only thing SAFE is to NEVER give a google ( android ) device your wifi password otherwise they keep it and use it forever.

>>> Want privacy? Don't use electronics and hide in a TINFOIL box, ... never leave that box or touch electronics and you DO, then you have lost your privacy.

Want to PLAY with CRYPTO-CURRENCY? THen you automatically lose your privacy.

Dewey Cheatum Howe's picture

Wrong like anything else it is how you hide in plain site something you seem to not be particularly good at...

The anonymity comes through obfuscation like the wallet addresses and not being able to associate them to anything identifiable. Something I will admit open ledger or not BTC doesn't really do a good job of protecting inherently but there are plenty of crypto-currencies out there working on this problem along with stronger encryption etc. Bitcoin is the MP3 equivalent here.

It is like turtles hatching on a beach they are all racing for the water the seagulls and predators are out in full force picking of the lesser ones but a few always slip through the gauntlet and come back to spawn again.

The block chain technology is here to stay whether regardless of what any knuckle draggers that don't understand it, .gov or financial institution trolls want to say otherwise.

Citxmech's picture

If a large gold vault (Like Sprott or maybe a nation) issued a crypto currancy that stands for a redeemable physical amount of actual metal and the books and inventory were open and auditable - then you might have something.  

Bunga Bunga's picture

A large gold vault, that's a centralized system again. A central instance is the weak point here. A power with the bigger guns can always try to get it under control.

donsluck's picture

Now THAT would be interesting. Not long ago several Mexican states were pressuring the National treasury to use a silver-backed Peso. I was watching carefully. It failed. Too bad.

MeelionDollerBogus's picture

but goldmoney is still operating & is openly audited. Silver, platinum, gold.

stacking12321's picture

yes, but gold money can no longer be used as payment between customers*

*unless you happen to be a resident of the isle of jersey

 

MeelionDollerBogus's picture

really? I don't use it so I haven't checked. Last I heard it simply couldn't be used at all in the USA & a few other countries so those countries were removed from operations. Payment between customers is as simple as counting how many units go from one vault area to another & the leger/computer is for fractions of physical until that physical reaches a whole bar to move.

stacking12321's picture

rule been in effect a while now:

http://www.goldmoney.com/glossary

 

Payment

A payment in GoldMoney is the nearly instantaneous movement of metal from one user's Holding (the payer) to another user's Holding (the payee). This exchange of metal transfers ownership of goldgrams, silver ounces, platinum grams or palladium grams (and the precise quantity of metal at the vault) from the payer to the payee. However, only customers resident in Jersey may use this metal payment service.

0b1knob's picture

"Any sufficiently advanced technology is indistinguishable from magic." - Arthur C. Clarke

< "There's a sucker born every minute." Phineas Taylor Barnum