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Guest Post: "What In The World Is A Bitcoin?"

Tyler Durden's picture





 

Submitted by Simon Black of Sovereign Man blog,

Earlier in the week, we wrote about an Argentine car rental agency that had started accepting Bitcoins as a means to bypass local capital controls.

We received a lot of questions about the article, the most common of which was “What in the world is a BITCOIN?”

Let’s start by looking at our current monetary system.

In most countries, a small tiny banking elite exercises total control over that nation’s money supply. And we’re just supposed to trust them to be good guys.

Yet central bankers around the world have conjured trillions of dollars out of thin air, debasing the money’s value. It’s a concept any six-year old can understand. If money grew on trees, it wouldn’t be worth very much.

This is one of the key reasons why people buy gold. You can’t just conjure gold out of thin air. It takes years of exploration and investment to pull it out of the ground.

In the information age, though, we have an alternative.

Bitcoin is digital currency. It doesn’t actually exist in our physical world… only in computers.

If this sounds esoteric and far-fetched, it’s not. The vast majority of our monetary system today is already digital.

A very small percentage of all the currency circulating in the world exists in physical notes and bills. The rest of it is merely accounting entries in bank databases. Most financial transactions are just a reshuffling of these database entries. Physical currency seldom changes hands.

Bitcoin is similar in this respect… nothing physical exists. But there are some key advantages.

For one, Bitcoin is not controlled by any government or central bank. And two, it’s private.

In the world of conventional finance, governments can see every time you use your credit card, withdraw cash at an ATM, or make a wire transfer.

Yet with Bitcoin, they don’t have this ability. And this is a key reason why Bitcoin has become so popular, especially in places like Argentina where people are getting squashed by their government.

A few days ago I wrote about an Argentine car rental agency that had begun accepting Bitcoins. My friend Sir Charles of PricedinGold.com was at their office; he snapped a photo and sent me some really great information.

The 1-day rental rate for a basic car was 380 Argentine pesos. At the government’s official rate, that works out to be $74 USD. In Bitcoins, the same car rents for 1.13 BTC… which is approximately $54 USD. This is nearly 30% cheaper!

The benefit for the rental agency is the privacy; they can avoid all the costly fees, bureaucracy, and debilitating capital controls associated with a normal transaction. Plus, they can hold Bitcoins instead of the rapidly depreciating Argentine peso.

If you think that these sorts of tactics– mind-numbing financial bureaucracy, confiscatory taxes, and capital controls– can’t happen where you live, think again.

I was just having a conversation this morning on the topic with Jim Rickards, author of the best-selling Currency Wars and one of the speakers at our upcoming Offshore Tactics Workshop.

Jim reminded me that, aside from Roosevelt confiscating gold back in the 1930s, the US government also imposed a confiscatory windfall profits tax on oil gains back in the 1970s. In addition, for most of the 20th century, capital controls were the rule around the world, not the exception.

To be fair, Bitcoin is not without its challenges. But the prospect of digital currencies presents an elegant alternative to fiat destruction.

If you want to find out more about Bitcoin, this website provides a lot of great introductory information

 


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Fri, 03/15/2013 - 18:03 | Link to Comment ZippyBananaPants
ZippyBananaPants's picture

What is a dollar?

Fri, 03/15/2013 - 18:05 | Link to Comment CH1
CH1's picture

Cue the Bitcoin freak-out squad.

Fri, 03/15/2013 - 18:05 | Link to Comment otto skorzeny
otto skorzeny's picture

I thought that was you

Fri, 03/15/2013 - 18:07 | Link to Comment CH1
CH1's picture

I think it's a wonderful new tool.

The squad I refer to are those with a deep and burning desire to ridicule and squash that which they don't even understand.

Fri, 03/15/2013 - 18:09 | Link to Comment otto skorzeny
otto skorzeny's picture

you or bitcoin is the wonderful tool?

Fri, 03/15/2013 - 18:09 | Link to Comment CH1
CH1's picture

As I was saying...

Fri, 03/15/2013 - 18:16 | Link to Comment Supernova Born
Supernova Born's picture

Bitcoin, EMP, SHTF.

Like storing a year's worth of digital food and water.

Fri, 03/15/2013 - 18:21 | Link to Comment McMolotov
McMolotov's picture

I think there'd be more support for bitcoins on ZH if they were called bitchcoinz.

Fri, 03/15/2013 - 18:35 | Link to Comment Ahmeexnal
Ahmeexnal's picture

What in the World is a Bitcoin?

Answer: YAPS  (Yet Another Ponzi Scheme).

Fri, 03/15/2013 - 18:44 | Link to Comment TheCanadianAustrian
TheCanadianAustrian's picture

Either you have no idea what a ponzi scheme is, or you have no idea what Bitcoin is.

Fri, 03/15/2013 - 19:55 | Link to Comment zerozulu
zerozulu's picture

So what will happen if all the paper, fiat, confetti is shoved in to the Bitcoin? epic fail!!

Fri, 03/15/2013 - 20:13 | Link to Comment kaiserhoff
kaiserhoff's picture

I like the concept of an alternative currency.  I really do.  But the reality is that this shit blows up, sooner rather than later.

Work with silver, tobacco, hooch, something that isn't a bad joke, and many of us will do our best to support it.

Fri, 03/15/2013 - 20:40 | Link to Comment knukles
knukles's picture

Money doesn't grow on trees.
Nor server farms.

Fri, 03/15/2013 - 20:42 | Link to Comment Matt
Matt's picture

How is a drilling platform or dregging equipment superior to a computer?

Fri, 03/15/2013 - 21:27 | Link to Comment kaiserhoff
kaiserhoff's picture

You can't be that stupid.

Fri, 03/15/2013 - 21:39 | Link to Comment francis_sawyer
francis_sawyer's picture

Never underestimate the STUPIDITY of BITCOINERS...

~~~

'Tiptoe ~ Through the Tulips'... ~ TINY TIM

Fri, 03/15/2013 - 22:52 | Link to Comment wee-weed up
wee-weed up's picture

It's very simple, actually...

Bitcoin relies on the Internet... and governments controls the Internet.

A no-brainer - stay away!

Fri, 03/15/2013 - 22:54 | Link to Comment Half_A_Billion_...
Half_A_Billion_Hollow_Points's picture

 

 

 

I'll pass on trying to explain bitcoins to the usual suspects today.  

 

It's like trying to explain nuclear weapons to napoleon.

 

Or trying to explain Euclid's theorem to an Orangutan.

Fri, 03/15/2013 - 23:09 | Link to Comment wee-weed up
wee-weed up's picture

Half_A_Billion_...  said... "I'll pass on trying to explain bitcoins..."

Oh please... do tell us what you will do when your gov't shuts down your Internet access?

What good will your bitcoin be then?

Fri, 03/15/2013 - 23:17 | Link to Comment Half_A_Billion_...
Half_A_Billion_Hollow_Points's picture

If the lights go out for prolonged periods we reach critical non-linearities in which the infrastructure of the gov't starts to break down rapidly.  Yes, they do have backup systems, but that will attract the hordes of zombies and they'll be facing a revolution in their hands.  

 

Even the internet, which is easier to plug off, will break command and control systems with the supply chains, banking systems, B2B systems, and numerous unpredictable second and third other effects.  

 

There are cybercafés in FUCKING ZIMBABWE and they worked fine throughout the hyperinflation.

 

BTW, you do realize that the spy agencies will soon be looking at *all* your financial transactions, don't you?

http://www.zerohedge.com/contributed/2013-03-14/all-us-intelligence-agen...

This is how I feel about that -->  http://www.quickmeme.com/meme/3tdp5k/

Fri, 03/15/2013 - 23:46 | Link to Comment wee-weed up
wee-weed up's picture

Yes, I know the spy agencies are already looking at EVERYONE'S financial transactions...

Do you?

And if you think they don't see your bitcoin transactions, you are VERY naive!

Sat, 03/16/2013 - 00:26 | Link to Comment Half_A_Billion_...
Half_A_Billion_Hollow_Points's picture

WTF

 

Here bro, all bitcoin transactions, out in the open  --> http://blockchain.info/

Sat, 03/16/2013 - 16:28 | Link to Comment Haywood Jablowme
Haywood Jablowme's picture

I just bought another 1000 rounds of my favorite 77 grain ammo using BTC.  No problems here bitches....

Sat, 03/16/2013 - 18:02 | Link to Comment gold-is-not-dead
gold-is-not-dead's picture

a great future is to be predicted for btc, math is good, i see several hundreds of people with similar calculations.... and the only opponents are the illuminati and the events in case the end of the world... even if we add anunaki the  btc shall prevail... :)

Sat, 03/16/2013 - 17:07 | Link to Comment EscapeKey
EscapeKey's picture

oh, yes, you're right; i see that address [1GxHj6ZNdmH8ukPpVCudwNMSNFaBbsTwfR] just received [15.57330929] BTC. however, i seem to be a little slow - perhaps you could tell me who owns that address, again?

Sat, 03/16/2013 - 00:11 | Link to Comment Matt
Matt's picture

You do understand that you do not need the government to make and maintain computer networks, right? And what are the odds that all the rest of the world governments would cooperate with an American Internet Killswitch action?

Sat, 03/16/2013 - 23:48 | Link to Comment unununium
unununium's picture

> do tell us what you will do when your gov't shuts down your Internet access?

On the plus side, without the internet, we won't have to listen to you.

Sat, 03/16/2013 - 09:29 | Link to Comment sessinpo
sessinpo's picture

You don't need to.

 

Bitcoin itself, explains its own fallacy.

 

With limited production (of which you and I have no idea who controls since all that is said is the bitcoin number is created by a algorithm), bitcoin is susceptible to deflation. In other words, at some point no one would be able to get bitcoins, thus making it unusable to the general population - epic fail.

 

And we all know about algorithms. Who writes them, who can change them, who can hack them. Hell, for all we know, it could be someone that wrote HFT (High Frequency Trading) algorithms.

Sat, 03/16/2013 - 16:36 | Link to Comment fiftybagger
fiftybagger's picture

Do you always comment on things you know nothing about?  They are divisible down to 8 decimal places and the code is open source.  Maybe you need to do a little reading?

Crypto-Currencies Will Destroy The Banksters Monopoly On Money

The Bitcoin Channel

Sat, 03/16/2013 - 17:10 | Link to Comment EscapeKey
EscapeKey's picture

substitute "bitcoin" for "gold" and google the answer.

Sat, 03/16/2013 - 00:31 | Link to Comment silverserfer
silverserfer's picture

you can bet your sweet ass that at least cia is all up in bitcoin. They can see the transactions as they already own bitcoin. Go ahead and kid yourself till your your mom tells you its time to come inside for a homeade big mac. They know exactly what is going on with bitcoin. They are observing/developing it very closely.

Sat, 03/16/2013 - 00:51 | Link to Comment Half_A_Billion_...
Half_A_Billion_Hollow_Points's picture

And this is what they see: http://blockchain.info/

Sat, 03/16/2013 - 17:12 | Link to Comment EscapeKey
EscapeKey's picture

kid yourself till your your mom tells you its time to come inside for a homeade big mac

yes, you sure make a sophisticated point, which is sure to be taken serious when you come across like a petulant little child.

Fri, 03/15/2013 - 22:15 | Link to Comment Matt
Matt's picture

No, seriously. >99.99% of the work done in mining for gold is done by machines, powered by oil. Human Labor is an insignificant fraction.

You may say that dollar-wise, labor is a much larger fraction, but that is only because a person can do one hour of work and get paid in thousands of hours of labor worth of stored energy in the form of fossil fuel.

Fri, 03/15/2013 - 21:38 | Link to Comment Bunga Bunga
Bunga Bunga's picture

Was at the beginning a finite amount of gold just there and said 'Hi, I am the money' and nobody can mine it?

Sat, 03/16/2013 - 16:34 | Link to Comment fiftybagger
fiftybagger's picture

"So what will happen if all the paper, fiat, confetti is shoved in to the Bitcoin?"

Not that hard to figure out really.  Let's just use a round number like 1 trillion.  If that money flows into the roughly 10 million Bitcoins extant you get about 100k per coin.  You can extrapolate from there.

Crypto-Currencies Will Destroy The Banksters Monopoly On Money

The Bitcoin Channel

Fri, 03/15/2013 - 21:24 | Link to Comment A Nanny Moose
A Nanny Moose's picture

Rather than poison well fallacy, perhaps you might seek to elighten the unenlightened?

Sat, 03/16/2013 - 09:08 | Link to Comment jeebus
jeebus's picture

Either you have no idea what a fiat currency is or you have no idea whay a ponzi scheme is.

Fri, 03/15/2013 - 19:18 | Link to Comment FeralSerf
FeralSerf's picture

Aren't all forms of fiat money Ponzi schemes?

Fri, 03/15/2013 - 19:37 | Link to Comment TheCanadianAustrian
TheCanadianAustrian's picture

Bitcoin isn't fiat.

Sat, 03/16/2013 - 01:38 | Link to Comment Kirk2NCC1701
Kirk2NCC1701's picture

That is one of the reasons I'm trying to get the "Dr Paul Krugman" guy to take a stand on Bitcoins.  For or against?

Sat, 03/16/2013 - 09:27 | Link to Comment Sleepless Knight
Sleepless Knight's picture

Who created bitcoin?

How did THEY decide how many was enough?

How does the bitcoin supply increase upon usage and demand? What is it "tied" too?

If someone just created it out of 0's and 1's, then it sounds just like fiat.

What is backing the value of bitcoin? Faith in the bits itself?

My take is that bitcoin IS a fiat currency run by responsible people - so far.

Please enlighten me on this.

Sat, 03/16/2013 - 16:39 | Link to Comment fiftybagger
fiftybagger's picture

Start here

Crypto-Currencies Will Destroy The Banksters Monopoly On Money

The Bitcoin Channel

Sun, 03/17/2013 - 01:05 | Link to Comment thisandthat
thisandthat's picture

If that could possibly become true, sooner would the opposite.

Fri, 03/15/2013 - 20:15 | Link to Comment ACP
ACP's picture

Well, not really a ponzi, but somewhere between metal and paper. A bitcoin holder depends on a system, which can be destroyed by Krugmanites (similar to Elronners), but metal can't.

Edit: Shit, "Elronner" doesn't come up on google. Ref to scientology.

 

Fri, 03/15/2013 - 22:56 | Link to Comment Half_A_Billion_...
Sat, 03/16/2013 - 03:19 | Link to Comment thisandthat
thisandthat's picture

So you can't hide gold from the gov, but you can bitcoins? Who told you they wouldn't go after them, as well, once they'd became a potential threat to the system - remember the swiss bank secrecy?

Sat, 03/16/2013 - 07:39 | Link to Comment auric1234
auric1234's picture

They can be encrypted. If you took care, the only deciphering key is in your brain. Confiscation is extremely complicated as it would require torture.

 

Sat, 03/16/2013 - 10:06 | Link to Comment thisandthat
thisandthat's picture

So G-man comes to you, seizes the hashes, and you laugh at him because they're encrypted, and you expect it to end there?

Hero material, right there - you and all those "terrists", who just signed whatever "confession" they were handed, without even reading it, just to stop it.

But what tells you they can't just decrypt it? Have they told you their cryptanalysis secrets (including psychoanalysis, etc.)?

Sat, 03/16/2013 - 13:58 | Link to Comment auric1234
auric1234's picture

They can't beat math. Some problems are unsolvable, even by the government.

 

Sun, 03/17/2013 - 00:41 | Link to Comment thisandthat
thisandthat's picture

They can lock you just on that alone - do you think you can hand over a computer and not associated passwords and not get in trouble for that? And if it was for something as non-trivial as control/survival of the system, how hard would you expect them to go on you? Would you be ready to be treated as, say, a terrorist with all that implies - and would it really be worth it, unless you're some activist willing to sacrifice yourself for your ideals (and what's the percentage of people willing to do it - you know, family, business, etc.)?

No problem is unsolvable if there's a solution somewhere - you just need to squeeze it out. Unless you're so rich, you're a systemic risk by yourself, that is - are you?...

Sun, 03/17/2013 - 08:10 | Link to Comment gold-is-not-dead
gold-is-not-dead's picture

no violence is strong enough to solve the math problem... there are not enough secret staff and prisons to extract 200k wallets from brains, even matrix robots will lack resources to pull it off... the thing is that the cost of destroying btc is by far larger than the one of accepting it or just ignoring it, not to mention that it would be an never ending process which will lead to full bankruptcy of the opponents, again, due to math...

Fri, 03/15/2013 - 19:09 | Link to Comment SilverIsKing
SilverIsKing's picture

I'm the guy who has previously called them Shitcoins but I admittedly don't much about them. That said, if and when they become a common form of exchange, the government will find a way to shut it down.

That is 100% guaranteed.

Perhaps Shitcoin is an apt name then.

Fri, 03/15/2013 - 20:13 | Link to Comment redpill
redpill's picture

I have to agree, if they actually became widely used there would be government war on bitcoins.

Can someone explain what would stop them from using tax revenue to create their own massive bitcoin mining operation in an effort to inflate/devalue them?

Fri, 03/15/2013 - 21:24 | Link to Comment Bennie Noakes
Bennie Noakes's picture

It is only a matter of time until some businesses start offering to pay their worker's salaries in Bitcoins. Those bitcoins won't show up on a W-2, and there isn't even any way for someone to report his Bitcoins to the government (even if he wanted to).

Shazaam! Bitcoins become a loophole to avoid the income tax. Soon more and more companies will start paying their employees in Bitcoins.

And about that time, Congress will pass the "Build American Commerce Digital Currency Enabling and Protection Act" which will either make Bitcoins and anything like them illegal, or it will contain regulations which make them extremely difficult and/or expensive to use, or it will allow the government to effectively take over the Bitcoin system.

Enjoy them while they last.

Sat, 03/16/2013 - 16:42 | Link to Comment fiftybagger
fiftybagger's picture

How's that worked for shutting down bittorrent?

Crypto-Currencies Will Destroy The Banksters Monopoly On Money

The Bitcoin Channel

Fri, 03/15/2013 - 23:55 | Link to Comment babkjl
babkjl's picture

The government wouldn't bother with running their own mining operations.  The existing mining network is already gigantic and will increase by an order of magnitude when more people get their hands on AISC mining systems.  Governments can easily whipsaw the price by buying $5 million dollars worth at once, then selling all of it the next day and repeating it.  This amount would swing the price by about 50% and scare people away from such extreme volatility.  There are many people like me who actively maintain ladder quotes to stabilize the price.  It isn't very profitable to do this, but I do it more to promote stability and greater adoption of Bitcoins.  If more people here on Zero Hedge put up and maintained ladder quotes for Bitcoins, in addition to their gold, silver and lead, it would help strengthen them.  If the government did start whipsaw attacks, we would profit from it.

Sat, 03/16/2013 - 16:44 | Link to Comment fiftybagger
fiftybagger's picture

So the government can buy them up and them crash them.  Kinda like they do silver right?  Too bad there are no comex paper Bitcoin contracts eh?

Crypto-Currencies Will Destroy The Banksters Monopoly On Money

The Bitcoin Channel

Sat, 03/16/2013 - 06:04 | Link to Comment Royal Wulff
Royal Wulff's picture

The difficulty of mining is adjusted so that a new "block" appears about every 10 minutes. The reward for mining a block is (currently) 25 bit coins. That's how new bit coins come into existence, as a reward for the miner who invested computational effort into confirming a block.

Even if the state threw all their resources into it and defeated the difficulty adjustment, the maximum number of bitcoins allowed to be generated is 21 million.

After that, miners do not get awarded new bitcoins. Instead, they make bitcoins based on transaction fees for validating transactions.

Fri, 03/15/2013 - 18:21 | Link to Comment A Lunatic
A Lunatic's picture

I buried all of my bitcoins behind the barn at Farmville.........

Fri, 03/15/2013 - 20:14 | Link to Comment The Navigator
The Navigator's picture

And somehow, during a boating accident, I lost all of mine.

Fri, 03/15/2013 - 22:16 | Link to Comment EHM
EHM's picture

I ate mine.

Fri, 03/15/2013 - 22:58 | Link to Comment NoDebt
NoDebt's picture

I lost mine in a tragic sinkhole accident in Florida.

Sat, 03/16/2013 - 07:18 | Link to Comment JamesBond
JamesBond's picture

I pay all my whores in SimCity with them

 

jb

Fri, 03/15/2013 - 18:55 | Link to Comment Kirk2NCC1701
Kirk2NCC1701's picture

Ok, that's a valid concern.  Would it be alleviated if, say, you had it on an EMP-resistant chip (on the micro-SD in your phone)?  And in an EMP-proof case that floats (during one of your many boating accidents)?  ;-)

Fri, 03/15/2013 - 20:23 | Link to Comment Race Car Driver
Race Car Driver's picture

> Would it be alleviated if, say, you had it on an EMP-resistant chip (on the micro-SD in your phone)?  And in an EMP-proof case that floats (during one of your many boating accidents)?  ;-)

I'm thinkin' if I had an EMP-resitant chip in my hand and mbbe a backup in my forehead....

Sooner or later, we'll have to kid ourselves that all those old stories are just crap and our reality is mere coincidence.

Fri, 03/15/2013 - 21:15 | Link to Comment Dewey Cheatum Howe
Dewey Cheatum Howe's picture

At some point if it goes mainstream you'll see the equivalent of credit cards with a coin cell battery on them to store bitcoins off the net and to use at terminals in stores. You say well can't anyone steal your coins that way if you have the cards set up such that they only work on your own personal thumbprint that makes them more secure than a current card. There are ways to secure the cards and have them deactivated off the network in a decentralized manner doing it yourself from a secondary machine linked to your wallet.

It seems people don't appreciate the fact that decentralized also builds in redundancy which actually strengthens the network and security of your coins. You can't store your 1 piece of gold in 7 locations at once like you can with bitcoins. Inverse fractional reserves on your own coins where you have multiple claims (you own all those claims, it can be done with a specialized algorithm) on a single coin and can only cash in one claim into the network which in turn invalidates all the other claims on the same coin secures that coin better 1 coin 1 claim.

Like I said bitcoin is the beginning........ it won't be the be all end all and won't be the only currency game in town.

New thinking and new ways tends to confuse the old and narrow minded who think only their way is the right way (like statist thought).

Sat, 03/16/2013 - 03:15 | Link to Comment thisandthat
thisandthat's picture

If you store your bitcoins in 7 different places you just increase your chances of having them stolen 7fold... and once they're used, you can kiss the other copies goodbye as they'll be useless (or something's fundamentally wrong with the whole system).

Sat, 03/16/2013 - 04:11 | Link to Comment StychoKiller
StychoKiller's picture

So, what's yer password?  "12345"?  "password"?  See where I'm going with this?

Sat, 03/16/2013 - 10:14 | Link to Comment thisandthat
thisandthat's picture

Password is a gun to your face, or to someone you care about - see where this is going?

Sat, 03/16/2013 - 14:03 | Link to Comment Abaco
Abaco's picture

How is this any less of a threat to value stored in any kind of financial acount or instrument or precious metals. True, there is no ABSOLUTE security,and the threat of physical violence can compromise any system. This is not a relative weakness of bitcoin. Keep thinking.

Sat, 03/16/2013 - 16:47 | Link to Comment fiftybagger
fiftybagger's picture

So far the arguments amount to:

 

What if the entire internet is destroyed?

What if you are tortured for your password?

What if they establish a world police state?

 

If any of the above occur, people won't be too worried about Bitcoin.  Get it?

Crypto-Currencies Will Destroy The Banksters Monopoly On Money

The Bitcoin Channel

 

Sat, 03/16/2013 - 23:29 | Link to Comment thisandthat
thisandthat's picture

And you are seriously expecting banking and the entire system behind it to just sit and wait for its own demise while you laugh all the way to the "bank"? I just can't fucking believe you - you got to be kidding me or yourself (or both)...

Sat, 03/16/2013 - 23:10 | Link to Comment thisandthat
thisandthat's picture

The question is that some people seem to put this as some sort of magical bullet, an "immunity" against "the system", when in fact it's not immune to either system or individuals at all - if anyone wants it from you, they'll take it, legally or illegally, just as with anything else, and if it ever becomes even just a nuisance to said system, this will react against it, and even if this won't steer hardcore supporters away (as it never does), it will ordinary people - just view what happened with banking or stock market: how many people (including bc users) do you know who got out of banking system?

The condition that makes it useful is the condition that makes it a risk to own; the condition that would make it safe to own is the condition that would render it pointless.

Fri, 03/15/2013 - 21:27 | Link to Comment A Nanny Moose
A Nanny Moose's picture

Faraday cages! Bytchez!

Sat, 03/16/2013 - 04:11 | Link to Comment StychoKiller
StychoKiller's picture

Do you have any valid concept of just HOW an EMP works?

Fri, 03/15/2013 - 21:08 | Link to Comment Georgiabelle
Georgiabelle's picture

Exactly my thought. Having just finished William Forstchen's book "One Second After" I think I'll pass, though I definitely see the value of owning a mix of fiat alternatives. 

Fri, 03/15/2013 - 18:19 | Link to Comment WhiskeyTangoFoxtrot
WhiskeyTangoFoxtrot's picture

F*cking Simon Black. Didn't even really answer the question other than "a bitcoin is digital currency." No sh*t. Thanks for the "article." Very informative.

Fri, 03/15/2013 - 18:35 | Link to Comment Freewheelin Franklin
Freewheelin Franklin's picture

See my post below of Tom Woods interviewing Erik Vorhees. 

Sat, 03/16/2013 - 05:05 | Link to Comment mkkby
mkkby's picture

Everybody stop obsessing about power outages and hack/crack attacks...

Bitcoin is useless because you still have to use the banking system to buy and sell them.  Suppose I want to convert my USD to bitcoins to escape to another country.  I have to transfer funds from my bank to a bitcoin dealer, then have the dealer wire funds to another bank somewhere else.  If dot gov wants to stop this, all they have to do is prevent  banks from transfering funds to/from bitcoin dealers.  You're done.

Also, bitcoin may be fine for small transactions, but it's too imature for larger amounts.  Try to buy or sell 5,000 bitcoins and you won't be able to without massively moving the price.  For small amounts it's much easier to use cash or PMs.  Why bother with the silly bitcoins at all?

In short, they have no advantages over cash/PMs.

Sat, 03/16/2013 - 14:29 | Link to Comment Abaco
Abaco's picture

Quite myopic.  One thing that can be done with bitcoins that cannot be done with cash is to make an anonymous purchase from a distance beyond which it is not feasible or cost effective to travel with my cash/pm's. Supose you cnvert your USD to bitcoins and then emigrate to Argentina. You can spend your bitcoins in Argentina and US .gov won't know.  It is one more layer. Do you think there are no black markets in the US or anywhere else in the world?

Sat, 03/16/2013 - 16:58 | Link to Comment fiftybagger
fiftybagger's picture

I see we have a lot of educating to do here.  Mt Gox and others are already AML and KYC compliant.  You can already buy or sell gold or silver for BTC.  The price has already moved massively, so what?  BTC futures and options are already in the works for you to hedge your BTC, and soon your LTC, NMC, etc.  "In short, they have no advantages over cash/PMs" .  Except they are a lot easier to tranpsort in your head.  I don't believe the TSA has developed bitcoin brainscanners yet, ROFL.

Crypto-Currencies Will Destroy The Banksters Monopoly On Money

The Bitcoin Channel

 

Fri, 03/15/2013 - 18:40 | Link to Comment clymer
clymer's picture

truly is a non-informative article. And I don't care what the friggin RSA, El Gamal, Diffie-Hellman, Eliptical Curvish 256bit block cipher that went into this pseudo-crypto currency either. You know why? Say quantum computing doesn't break this thing in a few short years, and flood the market with its' fiat digital equivalent (kind of like fiat standard currencies with nation-state names on them today), and say it isn't just some social experiment by tptb.

WTF is stopping sigma chi at MIT from splatting out 6 more new ones next semester? I can see it now, "cyberbux. Is it the next bit coin?"

Gaaahd people are dumb.

Yeah, I'll stick with PM's to outlast anything that can be rendered useless by a solar flare.

Not that I don't like anything that bites the ankles of rich bankers..

 

Fri, 03/15/2013 - 19:04 | Link to Comment EscapeKey
EscapeKey's picture

These "end of the world" comments always amuse me. If we do get hit by a Carrington event, do you really think everything will be the same as yesterday, only you will be richer for owning gold and silver? No. Life, as you know it, will be completely gone. It will just plain suck.

And worse than that - even IF food was available for all, the distribution network would be completely gone. Unless you were entirely self-sufficient - which would automatically mean you'd have to fight off the millions who weren't - you would now be reduced to fighting the few productive self-sustaining individuals left on planet Earth.

Gold is a hedge against economic upheaval, and major devaluation. It's not a protection against complete meltdown.

Fri, 03/15/2013 - 19:30 | Link to Comment clymer
clymer's picture

Hey, I ain't intentionally dissin anyone that is buying or exchanging in bit coins. No sireee bob. I am just sayin that I trust constitutional "money" (yes money, not currency) more.

Here's an idea - back bitcons with gold (and silver), and use a floatng point on an exchange for it, where conversion can take place. Shit, get Eric Sprott to do it - he has the money to pick up enough bit coins for PM's. 

The new COMEX!!

Whoever starts this will get me to buy in. If it doesn't get backed with something, competitive digital currencies will eventually render it meaningless. Here's an idea - back bitcoin with pm's, cyberbux with brent sweet crude, and digi-dollars with corn or rice or some shit. 

Till then, I will continue to make my scenic and generally hung over drive to the coin shop every other Saturday morning. I generally look forward to this, as my life is mostly uneventful.

 

 

 

Fri, 03/15/2013 - 23:12 | Link to Comment Half_A_Billion_...
Half_A_Billion_Hollow_Points's picture

>> Here's an idea - back bitcons with gold (and silver), and use a floatng point on an exchange for it, where conversion can take place. Shit, get Eric Sprott to do it - he has the money to pick up enough bit coins for PM's. 

 

1.  coinabul will get you gold & silver for 33bitcoins/ounce of gold.

2.  If you back it up, you create a central point that can be brought down by gov't.  Decentralization is key. 

 

I hope you are not taking your cell phone to the coin shop, as that will be stored in a database.

Sat, 03/16/2013 - 15:01 | Link to Comment clymer
clymer's picture

Anything can be brought down by a determined tyrannical govt., my painfully naive and hopelessly ostentatious little man, which might suggest that we focus on the crux the issue, eh? The govt.? Maybe?

Fri, 03/15/2013 - 19:12 | Link to Comment nmewn
nmewn's picture

I'm with you there...biting the ankles of elites, whether they're nanny-statists bent on prying into every transaction made between individuals or the parasites that orbit them.

But again, if the commercial power/internet goes out, the ability to trade in bitcoin's for a product or service is also down, it is its weakest link...not encryption. One might as well present a debit or credit card to the cashier illuminated by a single candle because the stores power is out...you're gonna get the same look ;-)

Fri, 03/15/2013 - 19:40 | Link to Comment BailoutBandit
BailoutBandit's picture

Seriously. Who the fuck cares about the encryption?  Obviously the exchanges are extremely vulnerable.  If your bitcoin exchanges are taken down *deliberately* by humans (not sunflares) because someone doesn't want them to exist, it doesn't matter how much your encrypted digiital coin is worth if you can't exchange it for something else.  Sure you can mirror the exchange and have it pop up some other place, but how shady is that?  What kind of certificates are you going to be issuing for these shady exchange sites?  It's going to be like downloading files from Russian porn sites.  Good luck not getting a virus.

Fri, 03/15/2013 - 20:03 | Link to Comment nmewn
nmewn's picture

The best way to avoid encryption/password/digital problems is to not allow them into your life the first place. If the government or bankers or your neighbor or your spouse for that matter (whoever, whatever) doesn't know how liquid you are, its not a problem for you or me, its a problem for them...lol.

Overly complicated, man-made enterprises tend to fail simply because of the complexity of all the moving parts having to work together for it to function. There are too many opportunities for it to fail.

As an aside, no one who owned gold or silver or even land (provided the force of law didn't change) was the least bit scared when the digital/paper markets froze up. I laughed through the whole thing while people were running around with their hair on fire saying the sky was falling and were afraid their on-line accounts wouldn't work at some point...SOMEONE HAS TO DO SOMETHING!!!

I've always slept well for a light sleeper ;-)

Fri, 03/15/2013 - 20:23 | Link to Comment EvlTheCat
EvlTheCat's picture

+Two thumbs up!

Fri, 03/15/2013 - 22:30 | Link to Comment nmewn
nmewn's picture

You know what sucks ETC?...I really don't care if they use it...its their choice but in my estimation it will let them down when they most need it. And the bad vibes here at ZH for voicing concerns about it...I like CH1 & Matt and the rest, they're good people.

I'm ambivalent about it, with a functioning (or in the case of Argentina, limping) fiat credit system it works, without it, it won't when Argentinians walk off the job at the power plants and the lights go out...which is all anyone needs to know.

With it, I don't blame any Argentinian (or other nationality) for taking advantage of the back channel aspect of Bitcoin...which will cause it to be attacked precisely because of that aspect...like Swiss banking was, like the Caymans...like any other way of keeping the bastards hands off of what is not theirs.

I commend the Bits for that attempt...but its just an off-book ATM to me...which is fine, until the lights go out. I'm not interested in "digital currencies" theres too much of that now.

Fri, 03/15/2013 - 23:09 | Link to Comment Half_A_Billion_...
Half_A_Billion_Hollow_Points's picture

If the lights go out for prolonged periods we reach critical non-linearities in which the infrastructure of the gov't starts to break down rapidly.  Yes, they do have backup systems, but that will attract the hordes of zombies and they'll be facing a revolution in their hands.  

 

Even the internet, which is easier to plug off, will break command and control systems with the supply chains, banking systems, B2B systems, and numerous unpredictable second and third other effects.  

 

There are cybercafés in FUCKING ZIMBABWE and they worked fine throughout the hyperinflation.

If you are thinking the collapse means we go back to year 1300, you might want to see a doctor.  

Sat, 03/16/2013 - 07:51 | Link to Comment nmewn
nmewn's picture

You trying to convince me or yourself? Thats almost word for word what you said up top except the last paragraph.

I'm seeing a pattern develop here, the beginnings of cracking a code ;-)

No, the lights will come back on, eventually, just as they did in Argentina after four days of rioting. But lets say you didn't survive the rioting because you were running around outside with a USB looking for power & internet...and got pcked off by police or rioters.

Does this brave new "digital currency" provide a means for your survivors, your heirs, to access (theres that word again, access) whats left in your account? If not, where does the account (and the bitcoin in it) go in the ether? Is there a Cyber Unclaimed Bitcoin Department they can contact?...lol.

You would have to make prior arrangements wouldn't you?

My arrangements for "currency" are somewhat less complicated and don't involve government, wills, encryption or internet lost & found departments.

Sat, 03/16/2013 - 17:05 | Link to Comment fiftybagger
fiftybagger's picture

If you die and poof your bitcoins they are gone forever.  That means the remaining ones are worth more.  Maybe you should study a little bit before you comment on things you know nothing about.  Even if all the world suffers a simultaneous power outage(not likely).  Once people start coming back up then the blockchain begins to synchronize again.   

 

Crypto-Currencies Will Destroy The Banksters Monopoly On Money

The Bitcoin Channel

Sat, 03/16/2013 - 19:03 | Link to Comment nmewn
nmewn's picture

"Maybe you should study a little bit before you comment on things you know nothing about."

I don't need to, I've just had a Bitcoin acolyte (you) confirm everything I've been saying. Its not money/currency. But why do I say this? Because money doesn't die when its owner passes away.

But the deceased credit line damned sure does.

Thank you ;-)

Sat, 03/16/2013 - 09:07 | Link to Comment EvlTheCat
EvlTheCat's picture

@world

I would rather barter with produce then Ether. Which would you like a 1lb organic tomato or a bitcoin?  I know my answer.

@nmewn,

I spent to many years believing in the smoke and mirrors of computers, and their dominant foothold in our current affairs.  Threw off the shackles and have been better for it.

Dragged my kids out of the uneducated education system and they have been better for it.

All around a healthier and happier life we lead.  Now, if I can just have one year without vine bore bugs in my squash my life will be complete.

Take care!

Sat, 03/16/2013 - 06:07 | Link to Comment Royal Wulff
Royal Wulff's picture

You only need an exchange to convert bitcoins into fiat. Bitcoin-to-bitcoin transactions are mediated within the peer-to-peer network of thousands.

 

Sat, 03/16/2013 - 14:40 | Link to Comment BailoutBandit
BailoutBandit's picture

Networks of thousands doesn't sound like many. If you lose the exchanges you lose inflow of funds, decrease demand, and create a crisis of confidence, correct? Otherwise you are just trading in network and limited to purchase what is for sale on the network. You need the exchanges more than you think. I can think of one or two entities that might want to undermine the exchanges.

Fri, 03/15/2013 - 19:47 | Link to Comment Bunga Bunga
Bunga Bunga's picture

If the commercial power/internet goes out, the whole financial world will go up in flames. For that event keep some gold.

Fri, 03/15/2013 - 22:12 | Link to Comment Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Guess what the banking system (centralized one that is) goes down with the power also. Backup mechanisms are the same via things like gas powered generators and if you have a system where you can store the coins on credit cards (powered by coin cell batteries) you are back in business.

This is just the proving grounds right now. If it works the full infrastructure will come later.

Fri, 03/15/2013 - 23:02 | Link to Comment Long_Xau
Long_Xau's picture

Well then we Bitcoin users have a reason to prepare alternative power supplies and communication infrastructure. But it would be far from the only reason to do that anyway. So you assess how likely it is and prepare accordingly. In the example you mentioned, if you are prepared, you can take your smartphone and maybe a little stored power for the cashier's if necessary, and make the transaction. They can later spend them the same way if they have to, or wait. If you think people will not expect to ever restore at least basic power and communication again, that's a different story. I say they'd try to do that in any case.

Sun, 03/17/2013 - 07:19 | Link to Comment nmewn
nmewn's picture

You guys are absolutely wedded to the idea of a "digital credit currency" despite any and all issues with it aren't you? You're mimicking what the established banking cartels are doing already while Quixotically saying you're fighting the man...lol.

Its lunacy.

No, its bush league naivete...and I mean that in the ignorance sense not in a demeaning sense, look at you logic trail here...

"In the example you mentioned, if you are prepared, you can take your smartphone and maybe a little stored power for the cashier's if necessary, and make the transaction."

You expect the owner/proprietor to give you a discount for the use of your energy you already purchased and stored or are you giving your energy away for free in order for someone to accept your "digital currency"? Why would they go through these machinations when everyone standing right behind you has recognized, acceptable money, known in the real world, in the real or black markets?

"They can later spend them the same way if they have to, or wait."

You get to walk away with a product or service while the one who provided the product or service has to WAIT for your payment to clear?

Commerce is not charity. Its profit driven.

You're asking someone to delay not only the use of their profits/products/services but potentially their investment in the goods or service they just exchanged for your "digital currency". I won't even get into fraud/abuse and how they would get legal recourse for accepting it under your terms & conditions should the payment not clear in the future.

There is truly nothing new under the sun.

Mon, 03/18/2013 - 15:42 | Link to Comment Long_Xau
Long_Xau's picture

I'm not wedded to anything, just trying to help clear some misconceptions here.

mimicking what the established banking cartels are doing already

Umm I don't see any example of transactions truly free from the need for a trusted third-party EVEN within the narrow relationships within the banking system itself. Suppose central banker A wants to pay central banker B in gold. If A ships the gold he has to trust a whole bunch of people responsible for logistics. If A and B trust each other really well and B doesn't need the gold immediately for a payment anyway, they might contact each other via a secure phone line and agree that A owes B the gold payable at a later date. But suppose in that period A has a real boating accident. If A loses all his gold he can't keep his promise even if he has been honest. Or, if the gold stays safe but A drowns, A's successor might not want to keep A's promise.

I think my post looked naive to you because I did not elaborate on why it would work the way I described, thinking you understood in enough detail how bitcoin works.

You expect the owner/proprietor to give you a discount for the use of your energy you already purchased and stored or are you giving your energy away for free in order for someone to accept your "digital currency"?

Either way it is a transaction cost that needs to be covered between the seller's ask and the buyer's bid. However, the amount of energy required is really tiny, by any measure. Less than a minute on a smartphone. If he wants to be able to use a certain kind of currency he will find a solution for the technicalities at least for a bare minimum. Electronic scales use electricity too.

You get to walk away with a product or service while the one who provided the product or service has to WAIT for your payment to clear?

No. Bitcoin payments are considered complete, irreversible and safe from a "double spend" attack (all possible attacks are exceedingly difficult and wouldn't be attempted for a small/medium sum anyway) with enough confidence after 1-2 (6 recommended) confirmations are made, and a confirmation takes on average 10 minutes. If you don't want to wait, you can include a larger than standard (still tiny) transaction fee, which will ensure that the miners (or their mining software to be precise) will try to include your transaction in a block ASAP so that they can take the fee. Such transactions are also very unlikely for an attacker to successfully cheat on so they are considered safe after just a few seconds.
With Bitcoin the seller does NOT need to be online to receive the bitcoins - they are stored in the blockchain, which is like a open ledger that every full Bitcoin client keeps a copy of. He only needs to go online to verify that he has indeed received them. So the seller would want to check the status of the transaction once, taking less than a minute: in the first case 10-20 minutes after you've told him you've sent the bitcoins and in the second case he can do it immediately. He would want to do it on his own smartphone and not yours, just so that he can be sure that what he sees on the screen is real. He can use a untrusted internet connection without being afraid of being cheated - Bitcoin is designed for that (see Byzantine fault tolerance).
A unprepared seller who accepts Bitcoin may also have some tolerance for holding bitcoins for some time (maybe charging more), expecting to restore power eventually. But really in such a doomsday scenario people would find that maintaining an access to a truly global and unrestricted market as opposed to only what you can get locally can be a significant competitive advantage.

Fri, 03/15/2013 - 22:39 | Link to Comment Long_Xau
Long_Xau's picture

As it is, Bitcoin is actually surprisingly well protected from any potential quantum computing attack. See https://bitcointalk.org/index.php?topic=3008.msg565787#msg565787. Furthermore, only some of the cryptography used in Bitcoin would be vulnerable to a quantum computer attack and the Bitcoin protocol allows for the use of different cryptographic algoritms there. If/when quantum computers become a threat, the algorithms can be upgraded. See https://en.bitcoin.it/wiki/Myths#Quantum_computers_would_break_Bitcoin.27s_security. The Bitcoin community, both users and miners, have a vested interest in defending against an attack and not allowing a fork (two parallel blockchains) to occur, and this was well demonstrated with that recent fork incident with the 0.8 version of the Bitcoin client. The community found a consensus pretty quickly and the fork is now resolved. So I don't see any real threat to Bitcoin for a long time.

Talking about disruptive technologies, the precious metal moneys have their own share of potential long term threats. In fact, one technology is much more mature and well-developed than quantum computers. No fully functioning quantum computer exists, while gold has already been created through nuclear transmutation many decades ago. See https://en.wikipedia.org/wiki/Synthesis_of_precious_metals.

Make no mistake about it: it is a question of time when this technology becomes commercially viable, which might be accelerated by a increasing price of gold and/or if gold chauvinism/fundamentalism emerges or whatever you would call it. I'm talking about a potential belief emerging that there must be only one money/currency to eclipse all other, for all uses (it is OK and even desirable for gold to become the standard unit of account, in which everything else is priced, but it is prudent to also use other things to store value in, and many times it is necessary to have even more options for a medium of exchange).

So it could be counterproductive to artificially limit your options for storing value and especially for media of exchange. In the mean time, I'm still Long Xau (among other things).

Fri, 03/15/2013 - 23:30 | Link to Comment Clinteastwood
Clinteastwood's picture

After reading this article, my question to you is "Did you read this article??"

 

The idea that someone somewhere with an infinite amount of electricity and a multiplicity of scientific brains and a boatload of materials.......all organized just so ...............can synthesize gold.........is about the most unlikely scenario I have ever been exposed to.

 

(And I could'a said it a lot more snarkily, you twit).

Sat, 03/16/2013 - 02:43 | Link to Comment Long_Xau
Long_Xau's picture

The idea that someone somewhere[...]

Who and where would be the most trivial thing to imagine, but as I said, the question is when. When I said "a question of time" this does not mean "any day now". I did say "potential long term threat". Read: it certainly won't happen in the next 15 years, probably not in the next 40 years, and even when it does, it is not certain how quickly it would be able to reach a high enough rate of production to make gold unsuitable as a store of value.

Think of an ounce of gold in ancient times. With it you could buy a very big pile of wood (energy) and using some very primitive tools and inefficient processes (low temperature burning, etc.) you'd be able to do not very much work. Fast forward a couple of industrial revolutions. 100 years ago and also today you can buy a shitload of oil or natural gas with that one ounce. Even building nukes (a lot of energy, very cost efficient compared to the fossil fuels) doesn't take many of those. You can use modern tools and processes. You can burn the oil and gas pretty efficiently, although the nuclear reactions today are extremely energy-inefficient, even the nukes. Fast forward another industrial revolution or two and you will be able to afford insane astronomical amounts of energy and have access to efficient nuclear technologies. If then gold has the status of a dominant form of money and high purchasing power, similar to it's historic purchasing power, it would be easy to imagine this happening. Any sucker holding to their gold as their dominant store of value for way too long until that time will fell like a Weimarian going for 10 pounds of wood for his fireplace with 100 pounds of notes.

To be fair I've read the article a couple of times in the past 2 years or so, and I read the section about Gold again while I was posting. You can see past revisions of the article by clicking here: View history.

Sat, 03/16/2013 - 02:19 | Link to Comment Half_A_Billion_...
Half_A_Billion_Hollow_Points's picture

"And I don't care what the friggin RSA, El Gamal, Diffie-Hellman, Eliptical Curvish 256bit block cipher that went into this pseudo-crypto currency either. You know why? Say quantum computing doesn't break this thing in a few short years, and flood the market with its' fiat digital equivalent (kind of like fiat standard currencies with nation-state names on them today), and say it isn't just some social experiment by tptb.

WTF is stopping sigma chi at MIT from splatting out 6 more new ones next semester? I can see it now, "cyberbux. Is it the next bit coin?"

Gaaahd people are dumb."

 

Yes, the human biped is dumb, and you don't know your computational physics.

 

One of the consequences of the second law of thermodynamics is that a certain amount of energy is necessary to represent information. To record a single bit by changing the state of a system requires an amount of energy no less than kT, where T is the absolute temperature of the system and k is the Boltzman constant. 

Given that k=1.38?10?16 erg/?Kelvin, and that the ambient temperature of the universe is 3.2?K, an ideal computer running at 3.2?K would consume 4.4?10?16 ergs every time it set or cleared a bit. To run a computer any colder than the cosmic background radiation would require extra energy to run a heat pump.

Now, the annual energy output of our sun is about 1.21?1041 ergs. This is enough to power about 2.7?1056 single bit changes on our ideal computer; enough state changes to put a 187-bit counter through all its values. If we built a Dyson sphere around the sun and captured all of its energy for 32 years, without any loss, we could power a computer to count up to 2192. Of course, it wouldn’t have the energy left over to perform any useful calculations with this counter.

But that’s just one star, and a measly one at that. A typical supernova releases something like 1051 ergs. (About a hundred times as much energy would be released in the form of neutrinos, but let them go for now.) If all of this energy could be channeled into a single orgy of computation, a 219-bit counter could be cycled through all of its states.

These numbers have nothing to do with the technology of the devices; they are the maximums that thermodynamics will allow. And they strongly imply that brute-force attacks against 256-bit keys will be infeasible until computers are built from something other than matter and occupy something other than space.

Sat, 03/16/2013 - 15:03 | Link to Comment clymer
clymer's picture

Just to try to respond in track of your subject matter (which pivots like the eyes of an ADD rhesus monkey) - Last I checked, Gold was created in dying stars, not bit coins.

And bro.. Cutting and pasting blather produced by your search engine is, well ok, we all do it - here's my point: BUY ALL THE FUCKING BIT COINS YOU CAN STUFF INTO A PETABYTE DRIVE for all I care. As they say, "good luck with that."

Sat, 03/16/2013 - 04:17 | Link to Comment StychoKiller
StychoKiller's picture

Feel free to start your own digi-currency (assuming you have the smartz to do so!)

Think (wo)man:  WHAT backs Fiat currencies now?

 

What's to prevent the US Treasury to issue "red dollas"? (probably at a time most inconvenient for the Ignorati!)

"What if" is such a fun game to play, can't you come up with better ones?

Sat, 03/16/2013 - 17:12 | Link to Comment fiftybagger
fiftybagger's picture

They are already trading.  And the currency of the realm is not dollars, it's BTC:

https://vircurex.com/

https://btc-e.com/

 

Crypto-Currencies Will Destroy The Banksters Monopoly On Money

The Bitcoin Channel

Fri, 03/15/2013 - 20:22 | Link to Comment Money Squid
Money Squid's picture

CH1 - I would like your opinion. If you are a US citizen you are required to pay taxe, or at a minimum disclose to the goverment certain financial accounts. Do you believe you are required to disclose your bitcoin accounts to the IRS if your bitcoins are worth more than $10,000?

"If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, the Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service by filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR)."

"The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The FBAR is a tool to help the United States government identify persons who may be using foreign financial accounts to circumvent United States law. Investigators use FBARs to help identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad."

 

Fri, 03/15/2013 - 20:57 | Link to Comment Bunga Bunga
Bunga Bunga's picture

I don't understand why you need an account for Bitcoins. Bitcoins are stored on your computer, flash drive CD-ROM or you can simply write it down on a sheet of paper.

 

Fri, 03/15/2013 - 21:31 | Link to Comment A Nanny Moose
A Nanny Moose's picture

I believe even physical BTC are available.

Fri, 03/15/2013 - 21:47 | Link to Comment Bunga Bunga
Bunga Bunga's picture

That what I meant by 'writing down on a sheet of paper'. Then destroy all your computers, flash drives etc and stash it in your mattress. I don't think the law requires to fill out a tax form for doing that.

Fri, 03/15/2013 - 21:59 | Link to Comment Money Squid
Money Squid's picture

The key is do you have control over a foreign account that requires disclosre persuant to US laws? Does the bitcoin network and/or the bitcoins themselves meet the definition requiring disclosure. The fact that you have control over the account either by actually signing paper with a pen, or signing electronicially means you have signature authority.

Fri, 03/15/2013 - 22:12 | Link to Comment Bunga Bunga
Bunga Bunga's picture

The private key is not a control over a foreign or domestic account. It's a cryptographic security feature for a BTC like the material security features on a dollar bill.

Fri, 03/15/2013 - 23:14 | Link to Comment Money Squid
Money Squid's picture
"Q. Is an FBAR required for accounts maintained with financial institutions located in a foreign country if the accounts hold noncash assets, such as gold?

A. Yes. An account with a financial institution that is located in a foreign country is a financial account for FBAR purposes whether the account holds cash or non-monetary assets."  Note "noncash" and "non-monetary assets"

If you buy gold or bitcoin from a shop, it is not an account. But, if you have an account with an entity like Mt. Gox to buy/sell bitcoins, is that required to be declared to the IRS?

How many of you bitcoin holders are exposed to an IRS fisting? I hope none. I am not a supporter of bitcoin, but I do not want to see any bitcoiners ground by the wheels of "justice" either.

The private key is your signature identifying you, the holder of the bitcoins, and authorizing the sale of bitcoins or the use of bitcoins for a purchase. The BTC itself is a noncash or non-monetary assest purchased with your FRNs.

My question is, is the bitcoin network itself a foreign financial system that requires disclosure according to US tax law?

 

https://en.bitcoin.it/wiki/Tax_compliance

 

There is a Report of Foreign Bank and Financial Accounts (FBAR) filing requirement for financial accounts in a foreign country when the aggregate value of the accounts exceeded $10,000 at any time during the calendar year. There is the likelihood that this requirement applies to bitcoins or USD funds held in non-US bitcoin exchanges or wallet services[3]. An additional topic that may have a connection to Bitcoin is the Foreign Account Tax Compliance Act (FATCA) filing requirement in the U.S.[4].

The Cryptocurrency Legal Advocacy Group (CLAG) has published memorandum detailing aspects of income taxation in the U.S. regarding Bitcoin[5].

Sat, 03/16/2013 - 01:13 | Link to Comment Bunga Bunga
Bunga Bunga's picture

Keeping Bitcoins on a private computer located in the US is something completely different than keeping them with a financial institution in a foreign country.

The private key is not identifying you or any person nor it is related to any person. When you buy bitcoins in a coin shop, the coins contain private keys and you can spend the coins on the bitcoin network without having to somehow link your name with the private key. The key is, as I said, just a cryptographic security feature.

How does the law define what is a financial institution? There must be specifics.

If a computer network was a financial institution, then any self storage or hotel would count as financial institution too.

 

 

 

Fri, 03/15/2013 - 21:54 | Link to Comment Money Squid
Money Squid's picture

 

You need an account to buy bitcoins, but is the bitcoin network itself a foriegn account since it is not specifically a US financial account regulated by US authorities. Note the language

"...financial interest in or signature authority over a foreign financial account", "...or other type of foreign financial account..."

Fri, 03/15/2013 - 22:36 | Link to Comment Bunga Bunga
Bunga Bunga's picture

You don't need an account for buying bitcoins. You can buy them in certain coin shops. If you are a more or less frequent trader, an account is convenient, of course. There will be a Mt Gox branch in US after March 31.

I don't think the law considers a computer network as a foreign financial account. Also I don't think Bitcoins are considered money by law or regulation.

If there is income from trading, of course, that needs to be reported to the IRS. I have by no means the intention of evading taxes like some big corporations or politicians by using offshore tax evasion shemes. I consider Bitcoins just as an amazing experiment.

Fri, 03/15/2013 - 23:08 | Link to Comment Money Squid
Money Squid's picture

"If there is income from trading, of course, that needs to be reported to the IRS."

Many bitcoin supports claim their bitcoins are below the radar and can not be tracked by the feds, however, if you have to report income to the IRS then you have disclosed your source, that you have bitcoins, no?

 

Sat, 03/16/2013 - 17:23 | Link to Comment fiftybagger
fiftybagger's picture

All of your questions are answered by the fact that legislatures have yet to DEFINE what bitcoins are.  Until they do those issues are all moot.  When they do finally come around to addressing the legal issues involving cryptocurrencies, the attention they will draw to them will send one BTC somewhere north of 10k.  The problem is what does the M mean.  AML restrictions are already in place and being followed by Mt Gox and any others who have dollar accounts. 

Crypto-Currencies Will Destroy The Banksters Monopoly On Money

The Bitcoin Channel

Sat, 03/16/2013 - 01:07 | Link to Comment kennard
kennard's picture

re: "foreign financial account"

If your 'allocated' 400-ounce London Good Delivery gold bar is held by, say, Via Mat, a warehousing company that is not a bank or trust company, in their London vault and you hold merely a warehouse receipt, then I don't believe that you have a "financial account", foreign or domestic. The contract is a bailment, just as anyone would have with a warehouse where they may store their furniture. Let's say that you are transferred from London to New York for a year and put some of your household possessions in a London warehouse until you return. If you leave a 400-ounce gold bar in a desk drawer among your possessions, does that mean that you have a 'foreign financial account' while you are resident in the U.S.? You do not.

A Bitcoin is an account, not a warehouse bailment. The bitcoin account is not 'foreign', however. So the Bitcoin is outside the compliance bludgeoning rule that you cite.

Worldwide income from any asset, including precious metals and Bitcoins, must be reported by a U.S. taxpayer. Therefore, falling outside your rule does not exempt anyoone from reporting income from Bitcoin trading; it merely reduces the risk associated with evading that income. If the IRS can subpoena Bitcoin trading records, or if they should happen to fall into the IRS' hands, then the assessment risk will outweigh the reward.

Sat, 03/16/2013 - 01:20 | Link to Comment Kirk2NCC1701
Kirk2NCC1701's picture

And since the is part of the Gov and the Gov is under the Fed, and the Fed is owned by certain unknown private banks... these hidden entities basically rule our lives via a series of leveraged ownerships.

Sat, 03/16/2013 - 13:43 | Link to Comment Money Squid
Money Squid's picture

Kennard - thanks for your response. I am not posting these links/info as facts against bitcoin, but I am interested in how bitcoins are, or how some bitcoiners want them to be, treated with regards to foreign transaction reporting requirements required by the US.

 

http://astounde.com/bitcoin-central-digital-currency-exchange-approved-t...

"The popular European Bitcoin exchange, Bitcoin Central, has garnered approval from financial regulators to operate as a bank (PSP) under French law, legitimizing the currency in many circles."

If a state, in this case France, regulates one or more bitcoin exchanges, recognizig the exchange as a bank, does this now require any US citizen to report their bitcoins as a foreign account to the IRS, if the total value of the bitcoins, plus and or minus the value of money in the account to buy/sell bitcoins, is greater than $10,000 USD? Can the entire bitcoin network now be regulated as a foreing financial entitity by the US gov because of France's, or any other country's decision to regulate bitcoin as a currency, and/or banking system?

Fri, 03/15/2013 - 20:14 | Link to Comment Money Squid
Money Squid's picture

Cue the bitcoin pump squad even thought they have no understanding of what bitcoins are, but still must fanatically pump bitcoins at every article

Sat, 03/16/2013 - 17:28 | Link to Comment fiftybagger
fiftybagger's picture

No need to pump my dear, Cyprus just followed Argentina quite nicely in doing so.  As to your other question, why bother keeping 10k in bitcoins on some exchange when you can have the majority of them parked on a USB stick?  Get it?

Crypto-Currencies Will Destroy The Banksters Monopoly On Money

The Bitcoin Channel

Fri, 03/15/2013 - 21:06 | Link to Comment Cabreado
Cabreado's picture

A medium of exchange and store of value has to meet the softer requirement of acceptance.
Chaos looks for something palatable to agree on, and digital money isn't it.
In fact, digital money is the wet dream of those who aspire to Control.

Bitcoin is feeding the chaos, and solving none of the root problems -- let's start with corruption.
There is much more waking up to be done here.

Fri, 03/15/2013 - 19:07 | Link to Comment negative rates
negative rates's picture

Something to be fucked.

Fri, 03/15/2013 - 19:38 | Link to Comment Long_Xau
Long_Xau's picture

Stuff you can find about in a catalog of old coins.

Fri, 03/15/2013 - 20:04 | Link to Comment NotApplicable
NotApplicable's picture

A promise to pay.

Fri, 03/15/2013 - 21:13 | Link to Comment markettime
markettime's picture

My gold coin doesn't crash from software malfunction.....nor do I need an engineer to fix it. 

Fri, 03/15/2013 - 23:26 | Link to Comment Long_Xau
Long_Xau's picture

If you are making a transaction, it can happen. Yes even with the gold coin. Electronic scales, ultrasound or X-ray spectroscopic devices used to verify that the coin is legitimate are all prone to technical glitches. And that's just for a in-person transaction. If you are making a transaction overseas, be prepared for a very real boating accident. The engineer won't help you. Also be prepared for something of this sort: https://en.wikipedia.org/wiki/Brussels_Airport_diamond_heist

After all we are talking about transaction when Bitcoin is concerned, not storing value. Storing value in Bitcoins is pure speculation - only do it if you really know what you are doing and what are the risks.

Sat, 03/16/2013 - 00:08 | Link to Comment sitenine
sitenine's picture

That's one of the most intelligent comments I've seen on any of these bitcoin threads. Thank you.

Sat, 03/16/2013 - 17:34 | Link to Comment fiftybagger
fiftybagger's picture

Not real risky for early adopters who have had a ridden the wave of 1 cent to 50 dollars.  500,000% return.

Crypto-Currencies Will Destroy The Banksters Monopoly On Money

The Bitcoin Channel

Fri, 03/15/2013 - 23:12 | Link to Comment Radical Marijuana
Radical Marijuana's picture

Once upon a time, a "dollar" was a precise amount of silver.

Today, a "dollar" is some electronic code, backed up by the power of governments to become violent. Bitcoin is the electronic code, without the power to become violent to back it up. Bitcoin only works to the degree that it can operate within taking for granted the sovereign states' powers to be violent, to back things up.

Sat, 03/16/2013 - 00:40 | Link to Comment JOYFUL
JOYFUL's picture

Zipppy's most interesting question goes unanswered....what, indeed, is a dollar?

But even more curious is the question: how does Simon's howler go unchallenged?...

...Yet central bankers around the world have conjured trillions of dollars out of thin air, debasing the money’s value. It’s a concept any six-year old can understand. If money grew on trees, it wouldn’t be worth very much...This is one of the key reasons why people buy gold. You can’t just conjure gold out of thin air. It takes years of exploration and investment to pull it out of the ground...

Gold's value as a fixed function relative to it's cost of production is a balloon that is floated  far too frequently...indeed, the noxious notion is more of an albatross than a guide to tierra firma in our exploration for a sound money safe harbor! ...It takes years of exploration and investment to pull it out of the ground....and yet, when the yellow metal was originally sought after, in the form of alluvial deposit,  often picking it out of riverbeds was indeed, as easy as picking money off a tree - yet it was accorded graeat value as a 'precious metal!'

Golden myths continue to block our access to an understanding of the real role of the metal in our lives and economies... and it's proper place as a component in a truly functional sound money system. All propaganda to the contrary, the price of gold, more often than not throughout history has been a function of the manipulation of moneymasters behind the curtain. Understanding the real "hidden hands" behind the myth of market function is the first step to liberating ourselves from the chains of pseudo-history.


Fri, 03/15/2013 - 18:06 | Link to Comment McMolotov
McMolotov's picture

Be sure to store all your bitcoins safely overseas.

Fri, 03/15/2013 - 18:14 | Link to Comment gmrpeabody
gmrpeabody's picture

I took all my bitcoins fishing with me..., and there was a terrible accident.

Fri, 03/15/2013 - 18:29 | Link to Comment Bunga Bunga
Bunga Bunga's picture

I took all my computer files fishing with me..., and there was a terrible accident.

Sun, 03/17/2013 - 10:26 | Link to Comment tom a taxpayer
tom a taxpayer's picture

Help! I'm somewhere around the Bronx, on the edge of the Cross, Very Cross Bronx Expressway, and the Compari aperitif, vodka martooni, carafe of house chianti, brandy flambé desert, double shot of sambuca, sniffer of kojack, and Irish coffee (hold the wimped cream I'm on a diet) are begining to take hole, and I only have bitcoins and I don't know if the George or Martha Washington Bridge or the Throbbing Neck Bridge will accept bitcoins, and i need some munchies and i wonder if the Bwonx bodega will take my itty bitty coins, and i'm almost out of gas…

 

Fri, 03/15/2013 - 20:34 | Link to Comment Not My Real Name
Not My Real Name's picture

I took all my fishing flies with me ... and there was a terrible boating accident.

Fri, 03/15/2013 - 19:25 | Link to Comment FeralSerf
FeralSerf's picture

Historically, there have been many accidents and unfortunate circumstances when people were moving their wealth overseas.  There were also pirates.

Fri, 03/15/2013 - 20:20 | Link to Comment stacking12321
stacking12321's picture

I took all my bitcoins  phishing with me..., and there was a terrible accident.

fixed that for you!

Fri, 03/15/2013 - 23:14 | Link to Comment Radical Marijuana
Radical Marijuana's picture

Cute comment, stacking12321. I would have green arrowed you, but for some unknown reason, I find that occassionally my clicking has no effect upon some comments ...

Fri, 03/15/2013 - 18:47 | Link to Comment Never One Roach
Never One Roach's picture

"This is one of the key reasons why people buy gold. You can’t just conjure gold out of thin air. It takes years of exploration and investment to pull it out of the ground."

 

Until I see retirment funds (like the Univeristy of Texas) or insurance companies (like NWML) buying hundreds of million in Bitcoins, I would be skeptical.

Sat, 03/16/2013 - 02:38 | Link to Comment Half_A_Billion_...
Half_A_Billion_Hollow_Points's picture

That's a sensible proposition, but by then you have lost all asymmetricity, and the price is on the four digits.

Fri, 03/15/2013 - 20:05 | Link to Comment jumbo maverick
jumbo maverick's picture

Whenever I jet back from sunning in Madagascar upon dropping my bags off at my Peruvian chicken ranch I go right into the village center to the Internet cafe and check on my bitcoin account.

Being an international king of mystery is good.

Sat, 03/16/2013 - 17:41 | Link to Comment fiftybagger
fiftybagger's picture

"Be sure to store all your bitcoins safely overseas."

 

Is the cloud overseas?  What sea is it over do tell? 

https://en.bitcoin.it/wiki/Securing_your_wallet

 

Crypto-Currencies Will Destroy The Banksters Monopoly On Money

The Bitcoin Channel

 

 

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