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On The Money-ness Of Bitcoins
Submitted by Nikolay Gertchev of the Ludwig von Mises Institute,
Bitcoins have been much in the news lately. Against the background of renewed concerns about the integrity of the euro zone and the imposition of capital controls in Cyprus, the price of a bitcoin has tripled over the last month and reached more than $141 for 1 BTC. Are we witnessing the spontaneous emergence of an alternative virtual medium of exchange, as some would put it? This article offers an answer to this question by considering three aspects of the economy of bitcoins: their production process, their demand factors, and their capacity to compete with physical media of exchange.
The Production of Bitcoins
A bitcoin is a unit of a nonmaterial virtual currency, also called crypto-currency, by the same name. They are stored in anonymous “electronic wallets,” described by a series of about 33 letters and numbers. Bitcoins can travel from a wallet to a wallet, by means of an online peer-to-peer network transaction. Any inter-wallet transfer is registered in the code of the bitcoin, so that the record of its entire transaction history clearly identifies its owner at any single moment, thereby preventing potential ownership conflicts. Bitcoins can be further divided into increments as small as one 100 millionth of a bitcoin. The current outstanding volume of bitcoins is above 10 million and is projected to reach 21 million in the year 2140.
This brings us to the truly fascinating production process of the bitcoins. They are “mined” based on a pre-defined mathematical algorithm, and come in a bundle, currently of 25 units, as a reward for carrying out a large number of computational operations that aim at discovering the solution to what could be described as a randomized mathematical puzzle. The role of the algorithm is to ensure a declining progression of the overall stock of bitcoins, by halving the reward every four years. Thus, somewhere in the beginning of 2017, the reward bundle will consist of 12.5 units only. Also, the more bitcoins are produced, the harder are the randomized mathematical puzzles to be solved.
Bitcoins come about as the uncertain pay-off for an energy—and hardware—-consuming process that is extended through time. The per-time pay-off varies, based on the efficiency and sophistication of the more-or-less specific hardware used for the mining. Individual miners have started to pool their efforts, and this cooperation has tremendously reduced the uncertainty that each individual miner bears.
Due to this costly production process, bitcoins, although virtual, are constrained by scarcity. While a bitcoin has no material shape or content, the algorithm that generates it has been designed to replicate the competitive production of a scarce good. First, entry in the business of producing bitcoins is open to anybody. Second, the production process is capital and labor intensive, extended through time, and also uncertain. Third, production is subject to decreasing returns, thereby conforming to the generalized scarcity faced by acting individuals in the better-known physical world. Thus, bitcoins turn out to be the exact opposite of the “Linden dollars” of the Second Life “virtual world.” The latter are produced by a monopolist central authority, out of thin air, and without any other limitation but the very discretion of that same monopolist authority.
However, it is not their costs of production that bestow on bitcoins the status of an economic good. After all, scarcity is not rooted in the absolute quantitative limitation of something; it comes from the insufficiency of the stock of that something, perceived as useful in some regard, relative to the individuals’ needs. Hence, we must ask ourselves how bitcoins have come to be valued at all. This leads us to an analysis of their demand.
The Demand for Bitcoins
At their inception, bitcoins were created and first held within a “crypto-punk” community. It could then be safely assumed that they served the purpose of conveying a specific antiestablishment worldview. The first demand factor, initially for producing bitcoins, and then unavoidably but only indirectly for holding them, was rooted in their capacity to project a certain point of view. In a sense, bitcoins were comparable to an artistic medium of expression, such as music, literature, and painting.
Thanks to that initial source of value, bitcoins had a reference point that positioned them relative to other goods and services. From there onward, the technological features that characterize them led to an expansion of their demand. Bitcoins are imperishable. Storage and protection against theft or accidental loss come at a very low cost, as these are accessory services rendered by standard antivirus and back-up software. Marginal transaction costs are also practically zero, once the fixed cost of establishing and maintaining a network connection has been accounted for. All these aspects are common to real wealth assets. Thus, the second demand factor for bitcoins is explained by their capacity to store wealth at a low cost. From the status of a good which, as a “worldview-conveyor,” was largely used for personal enjoyment (and hence consumption), bitcoins evolved into an investment good that has become attractive well beyond its original crypto-punk community.
The growing investment demand also spurred the development of intermediary dealers in bitcoins. There are a number of exchanges where bitcoins can be bought and sold against currencies. Specialized online storage, presumably with increased security, has also been made available. Intermediation, though open to free entry, is likely to remain rather monopolistic, given the very low margins associated with transacting in and with bitcoins.
This latter aspect, namely the intrinsically low transaction fee, contributes to a third demand factor for bitcoins, namely as a means of payment. A number of online vendors, who are mostly specialized in web-related services and online sales of rather exotic items, accept final payment in bitcoins, not the least because of the guarantee for almost absolute anonymity. This last component of the demand for bitcoins is still nascent. After all, a very limited set of items can be purchased with bitcoins, and sellers still price their goods in dollars, euros, etc. The price is then converted into bitcoins, according to the prevailing exchange rate, at the final stage of finalizing the payment method of the transaction. Thus, while bitcoins do appear to serve as a means of payment, they are definitely not used yet for business calculation. This is most certainly attributable to their still very limited demand to hold as a means of exchange. Nevertheless, couldn’t they become full-fledged money in the foreseeable future?
Bitcoins as Money
Prima facie, bitcoins possess all the qualities required from a money (a generally-used medium of exchange). They are perfectly homogeneous, easily cognizable, conveniently divisible, storable at practically no cost, and imperishable. Also, they seem to be fully shielded from counterfeiting. In addition, because they exist as a consumption and investment good, they are appraised on their own, thereby satisfying the Misesian regression criterion for the free-market inception of a medium of exchange. However, in order to become a viable alternative to existing monies, bitcoins must generate a sufficiently large demand so that their usage becomes generalized. Without the certainty that they can be transacted for any other good in the economy, a demand to hold them as money could not develop. It is with respect to their capacity to become and remain commonly used that bitcoins suffer from a relative disadvantage.
Indeed, bitcoins are embodied in a specific and highly capital-intensive technology. They can become convenient enough for standard personalized transactions only if both parties of the exchange possess the necessary technology that gives access to bitcoins. Bitcoins can do the job already for internet-based impersonalized purchases, because the marginal cost of the exchange technology they go along with is already almost zero for those who possess it. However, the transposition of that technology in the physical world of common face-to-face shopping (getting a haircut, buying a sandwich, or purchasing vegetables at the local grocery shop) would imply extra costs. True, these costs would decrease progressively as portable smartphones with permanent internet access become more widely used, not only by buyers, but also by sellers. The key point, however, is that bitcoins could become a generalized medium of exchange only through the accessory use of other, specific and physical, goods in an economy that has reached a very high level of technological development. This is a tremendous disadvantage, for at least two reasons.
First, at any given moment, the level of technological development is not uniform for all individuals within the same (national) economy. While some have access to the latest technology in a given field of activity, others prefer to stick to older versions. This is definitely due to the cost of replacing existing capital goods, but also to individual preferences, and sometimes to personal wealth. Consequently, bitcoins could become money only at the point when the technology that embodies them becomes commonly used. We are not there yet.
Second, an economy in which the medium of exchange is dependent so much upon the widespread use of a specific technology would be extremely vulnerable. Technologies are not given; they are the result of individual choices with respect to capital accumulation and allocation that must be made time and again, and are subject to reversal. Then, if the medium-of-exchange-linked technology is abandoned, because for instance no sufficient savings are available any longer, the economy will have to find another medium of exchange. This transition phase might then involve significant disruptions in the structure of production. A technology-linked medium of exchange does not provide enough flexibility to economic relations and might be viewed as complicating, rather than facilitating, some actions, such as shifting from one technology to another. This is a significant drawback of any virtual currency.
In trying to understand whether the increased popularity of bitcoins is reflecting the emergence of a new money, we have actually come to a fundamental distinction between virtual and material media of exchange. The latter are technology-embodied and matter-independent; the former are technology-independent and matter-embodied. This distinction is not trivial as it emphasizes the great advantage that material money offers: it is good enough for anybody and at any time, and is independent from individual choices with respect to investment, allocation and maintenance of capital. Virtual monies could be programmed to reproduce some aspects of material, whether commodity or fiat, monies. However, they will always be dependent on specific capital investment decisions. The latter reduce their degree of commonality as well as of adaptability to changing economic conditions.
In conclusion, virtual monies, of which bitcoins seem to be the most perfected specimen up to date, do not allow acting individuals to manage the uncertainty of the future as well as material monies do. They could serve to intermediate exchanges among those who invest in the technology that creates them, stores them, and transfers them. Nevertheless, they could never achieve that degree of universality and flexibility that material monies carry with them by nature. Thus, on the free market, commodity monies, and presumably gold and silver, still have a great comparative advantage.
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I'll keep my silver & lead..
But why the urge to say so at the first possible opportunity?
Did'nt even read read it CH1 Bitcoin is a hologram it's there till it ain't..
Holy Smokes! Bitcoin has taken over Zero Hedge!
And I thought the arguments about the Middle East and gold were bad...
DoChen... I agree, it seems ZH is getting somewhat sidetracked from the real issues at hand.
Eh, I can't blame Tyler- he gets paid by the click traffic... I'll gladly wade thru this drival if it keeps the site up.
If I can't dip my Caddy in it, or pay my ho's wit it, it's ain't no money to me.....
Bit coin may be a currency some day but it is not money.
As it becomes worth more and more, great resources will be applied to cracking its encryption and this will be successful at some point.
Further, we are heading into an age of real assets after our financial system has been collapsed by those who control the banks and the central bankers (and the BIS, IMF, World Bank, etc.).
Bit coin is an abstract currency not real money with 5,000 years of market choice backing it.
Quantum computers will crack almost everything, but then you can say good bye to all electronic finance as well.
Seems like the power elite want the sheeple to pile onto bitcoin so the real barometers of SHTF (gold and silver) remain off the radar.
Insta Death via EMP
It has potential as currency and should not be dismissed.
Moores law however seems to dictate that great computing power can increasingly be expended on cracking this medium and I think it will be achieved.
We are entering into a period of peak economic turbulence and potentially communication disruption - I would not want to be relying on Bitcoin in these times.
It will be interesting to watch.
Question: Who wrote the code for bitcoin transactions?
Question: Is the code open-source? Can I start my own free-market 'bitcoin' by modifying the code?
Question: Who decided which 'mining' algorithm to use? Panel of 'experts'?
Question: Who decided the mining bundle size, reward discount and it's half-life? Who controls this?
Question: Randomized mathematical puzzle? (Got to love that word 'randomized') If they are truly random, how are you to know if the mathematical problem even has a solution? Is it tractable, solvable? Who coded this randomization algorithm?
Question: Who regulates the monopolization of computing power dedicated to bitcoin mining?
Question: Who decided on the algorithm that is "designed to replicate the competitive production of a scarce good."? Is it based on the current consensus economic theory? What basis does it have in reality?
Question: How have all these algorithms been vetted?
Question: "...the production process is capital and labor intensive, extended through time, and also uncertain." Labor intensive? In the real world of mining, the skills and knowledge of the miners influence the amount of uncertaintly, no? So who controls this intrinsic uncertainty with bitcoin?
Question: Are you my father?
Why don't you start at the beginning?
The original paper: "Bitcoin: a Peer-to-peer Electronic Cash System" by Satoshi Nakamoto
http://bitcoin.org/bitcoin.pdf
You can begin your code audit here:
https://github.com/bitcoin/bitcoin
If you are disatisfied with particular aspects of bitcoin, you can choose other crypto-currencies that have different attributes.
https://bitcointalk.org/index.php?topic=134179.0
you can even trade between them:
btc-e.com
vircurex.com
enjoy.
Hang on. If I undrstand correctly Bitcoin transactions are distributed openly via a P2P network. Wouldn't that require a powerfull planet-wide EMP event to have any significant effect? An EMP that size and magnitude would probably wipe everything out, including power lines, low-orbit telecommunication satelites and who knows what.
Or an internet kill switch (or great Chinese firewall) in whatever country you happen to be in... because if you can't physically get to a place where you can access your virtual wallet, it is just as worthless as if no one is willing to accept the currency in the first place (or if you accidentally run over over your wallet with an mkfs).
How would you like to lose access to your money in your area for a few weeks?
It's a problem with electronic banking as well.
Far less of a problem with Bitcoin than online banking. I am the bank and the administrator with bitcoin.
True, but my bank won't let me telnet into their server and rm -rf / my account, only Uncle Ben (or the NSA) is allowed to do that...
Even with cotton-linen blend I can leave my wallet at a table in restaurant- there is no fool-proof strategy.
I could even confuse the spot on the lake where I had all those accidents, especially since rainfall can change the relative distance to the shore line.
It's when the Bit Coin Bitchez start pushing their magically invincible deus ex machina snake oil that I get concerned that some gullible idiot will start falling for their BS just as easily as they fall for the nonsensical FED fiat fibs of reassurance.
"Or an internet kill switch"
Maybe you should read up on what an internet is if you think they can just kill it when they feel like it. Some people are accessing the regular unfiltered web just fine in China and yes, they know the risks.
The internet is a "network" of "tubes", if you want to use it "your" data goes through "their" tubes. They can switch them off whenever they choose and have for years - try standing around a presidential motorcade sometime and even getting a cell signal, much less finding an open internet tube... Even the goat-fucking Pakis have mastered the basics of the Off-On switch. "They" don't even need to waste the bandwidth on DDoS when they can relatively easily filter the packets at the switch level.
In regards to BitCoin, it isn't Any Port, Any Protocol, Any Message Structure, it is clearly defined and can thus be blocked from successful transmission by those who control the tubes...
https://en.bitcoin.it/wiki/Protocol_specification
The network protocol is independent of the key exchange protocol. The network protocol can be changed at any time. It is defined only as a convenience for compatibility of software. The key exchange protocol is a mathematical object, subject only to mathematical attacks, not to physical controls.
But the key exchange protocol is useless if the network protocol is blocked. If authorities were to clamp down and the communication model devolves into into a game of cat and mouse then the desirability of the currency is effectively eliminated.
Blocking Skype or VOIP services would be an antique low-tech analogy- who uses Skype in a country where you can't use the client? (a cheap shot and a trick question - I know)
Without even resorting to packet inspection (or a more insidious packet manipulation strategy) or heaven-forbid a trip to a judge, Eric the Bagholder could get half a dozen CEOs on the line and have them append a rule to drop all TCP traffic on port 8333 almost instantly. Certain users in the Bitcoin community can overcome this almost immediately on an individual level, but the damage is the to the entire community and the usability and desirability of the product.
The alternative transport layer APIs range from the interesting (torrents) to the pie-in-sky BS of an kid on his parents computer (SW radio), but the fact remains above a more impervious and flexible alternative is needed - supposedly serious people claim this is fool-proof, but yet even a fool could explain to a monkey like Holder how to shut it down in less time than it takes to take a piss.
Yes exactly, an EMP is not something Bitcoin users fear. Or those legacy institutions called "governments", not too worried about them either.
Right I am sure people are piling into Bitcoin at the behest of TPTB. Or could it just be that Bitcoins are way simpler to buy, sell and trade from your home online? Or when you go to a coin dealer he is asking 15% markup on some of his ASE because "supply is tight" but when you go to sell he is offering less than spot because "I have to make a profit too"?
Correct me if I'm wrong, but Bitcoin is a creation of MIT a known NSA, DARPA, CIA hangout. They probably already cracked the code before it was introduced.
You have to ask the question, why all of sudden is bitcoin going through the roof and gold and silver are thrown to curb like a drunken politician.
So why haven't your quantum computers cracked online banking? What would be a more lucrative target for these quantum computers to go after? C'mon... it's pretty easy to do after all.
My understanding, perhaps incorrect, is that "cracking its encryption" would take more computing time and power than it is physically possible to perform before the heat death of the universe occurs.
You do realize that you can actually calculate how many decisions would have to be made in order to break an encryption scheme, right? (Unless one merely gets lucky, and the encryption key is "1".)
You're not counting with flaws in the code, which is how pretty much all cracking actually happens.
Back door by the guy who wrote the bitcoin encryption?
We are heading into the same period after the US Dollar that we have always been heading into... more processing power, more technology and faster payments.
Amazing the amount of people who think clocks are going to start ticking backwards after the US Dollar collapse.
Faster payments, at 10 min/transaction? Only if by faster you mean slower...
WTF are you talking about? I just transfered, took less than three minutes to be verified by the block-chain.
Can your communist internet banking do that?
https://en.bitcoin.it/wiki/File:TransactionConfirmationTimesExample.PNG
It takes about one hour to have enough confirmations, but then it's astronomically secure and irreversable. And that's a real chash transaction, directly between two peers between any places in the world. In contrast, banking transactions have a lot of middlemen involved and a transaction takes days before it really cleares for cash.
Yuss, comrade, and it could get me a disposable credit card, shop with it and have it all confirmed within seconds - everytime - obviously, proof enough of yet another red commie's evil cunning plan to take over the world, enslave the whole of mankind and submit it to the cult of Cthulhu, aka Satan; after all, it's bankers we're talking about here, not freedom loving, god fearing, red (oops...) blooded, 'mercan capitalists!
The only people trying to say that Bitcoin is money are people who are recommending you put 100% of your assets in physical silver and gold. They are putting words in the bitcoin communities mouth and then saying it is a pump and dump. Bitcoin is not money and nobody in the bitcoin camp is recommending you put all of your fiat money or faith in it.
ZH'ers, I'm rather disappointed at the linear thinkers and the in-the-box thinkers I see in the ZH blogs.
Has is even occurred to these skeptics, that you may have an opportunity to save you ass(ets) with PM + Bitcoin? And have an opportunity to bring he Fight Club movie to its crescendo finale, by opting out of fiat (with PM+Bitcoin)? Does everything have to be fucking spelled out for some people?
/God, I swear that some people must still be shagging donkeys, judging by the intellect of some people. /s
Either that, or we got tons of Gov/Fed trolls, who have an eager audience to get distracted by cutesie one-liners.
33 letters and numbers
.
'33' is an occult number as some of you may or may not know...i.e, 32nd d and 33rd d...FM
Cap'n Kirk wrote: "...linear thinkers..."
Obviously he was not referring to you BLOTTO, + 1!
Correct. Immediately calls into question the provenance of this "system".
I'm all for an alternative to fiat.
I'm behind the Bitcoin idea, but I just can't bring mystelf to put my own money into it.
Millions of people holding precious metals or even cash in their posession cannot be robbed overnight or even decades.
FDR tried it and estimates are he got less than 15% of physically held Gold, and could not shut down the black market.
My fear with Bitcoin is that if it becomes an alternative to fiat it relies on the networks ultimately controlled by TPTB.
If TPTB can hunt down the people that run Bit Torrent sites like Pirate Bay anywhere in the world, I do not see how Bitcoin survives a crackdown like that over time;
Even a six month to one year campaign by governments and central banks could devalue Bitcoin massively if not end it altogether.
Although, if somehow BC was able to be linked to physical silver...
You could embed a tamper-proof private key to a 1 btc wallet inside a physical ounce of gold. Owning the gold would give you an option on 1 btc.
What is the value of an option on something the value of which goes to infinity in the long run, but which no-one believes in at present?
Fiat means currency by order of an authority, but bitcoin is a voluntary currency in a peer-to-peer network.
While fiat currency does have that meaning, it also includes the idea of currency that has no intrinsic value. Its value is deemed to be that which it is declared to be. Bitcoin has at least that aspect of fiat inherent in its makeup.
Pls, get a class in Latin. It's also a misconception, that fiat must not have intrinsic value. In history there were a lot of fiat currencies around which had intrinsic value.
Not paper money, nor bitcoins - they're both backed by nothing more than the hope they'll still be worth anything when it comes to redeem them, because that's all they got going for them (and the fear they won't, which also keeps people pushing them onto others).
Bitcoin is backed by privacy and security which is a commodity more scarce than gold & silver.
right... and hope and dreams, too...
I know, but who controls the networks?
Remember, the Internet started as a military network.
Any declared "emergency" could give TPTB absolute control over them.
Do you also pee outside of the bowl, as well as thinking outside of the box?
"Does everything have to be fucking spelled out for some people?" - because you think know anything?...
Do you agree Tor, for instance, only still exists because it's still more of an asset than a liability for its promoters (and you know who these were, don't you)?
Either way, it's getting tiresome. It looks no different than pushing ETFs or whatever without coming clean about it. Ironically, the more they push it, the more adverse the reaction - I'm beginning to hate the crap out of it.
Silver and lead cannot be transfered anywhere on Earth in an instant. Bitcoin has them both beat in that regards. Time is still going forwards. It is reasonable to surmise that time will still go forwards, technology will still go forwards after the fiat currencies crash.
It (bitcoin existence/phenomenon) is an interesting development. One that I think would not have occured were it not for the government monopoly on irredeemable, debt-based currency. Real thru-the-looking-glass stuff... trading fiat currency for virtual currency.
The best thing about bit coin is that it has the ability to open peoples eyes to simple truth that ALL currency is actually worthless on a long enough timeline, regardless of whether it is cotton-linen blend or digitial, or centralized or distributed.
medium-of-exchange vs medium-of-savings,
the species of money that can exist in both states on a perpetual timeline is rather limited...
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Yes - why aren't we talking about Mexicans, Muslims, and Negros?
Where's trav7777 when you need him
Trav7777 went black, that's why he aint ever coming back.
He's with a white girl now?
Mario Draghi answered a Zero Hedge question today in a presser. Tyler is on point.
http://www.zerohedge.com/news/2013-04-04/mario-draghi-responds-zero-hedg...
So it's not a bitcoincidence?
Bitcoin is the "real issues" simple man.
Sorry. That was my fault. I finally got driven over the edge by the BitCoin crazies and took the plunge last month. Then all hell broke loose. BTC shot to the moon relative to the dollar (and every other currency), ZH started printing articles about it incessantly, black helicopters started following me around.... quite frankly, all the publicity has been a bit overwhelming.
I still barely understand it all, but when you're in a tornado you're gonna go where the wind blows you. ;)
Ugh, so you invested in something without really understanding it?
Best of luck to you, but to me that's the equivalent of buying a lottery card. Or a dot com in 1999.
I invested less in BitCoin than I did in Powerball all last year. Believe me, it wasn't about making money on it directly. I was about learning it from the ground up so I had a frame of understanding to even engage in a discussion about it. It was money well spent, I think (even though I have technically "made money" since I got in around $48/BTC). If I lose it all, which I expect to eventually, I've still learned something that might be worthwhile later.
Crazy? Like a fox, maybe. I know stuff a lot of other people don't now. I'll pay a few bucks for that kind of knowlege.
Where I'm really stupid is that I tend to share too much of what I've learned (often the hard way) with others for free. THAT is the definition of true stupidity.
No, that's fair enough. I've done that before as well - if unsure, do an initial minor investment and see where it takes you. I always consider failure a really powerful way to learn, and if only small amounts are on the table, it's no biggie. What is stupid is people who fail, and refuse to learn from it, say by blaming the weather, the neighbour, or "the establishment" (etc).
My own personal investment in BTC is having a few 7970's in my office mining away. Electricity is part of the package, so I don't pay extra for that, and my PC is standing unused while away anyway.
No it's not. Sometimes sharing your knowledge is the template for success. ..and good Karma.
@nodebt said: "Where I'm really stupid is that I tend to share too much of what I've learned (often the hard way) with others for free. THAT is the definition of true stupidity."
More than likely you've engaged in an informal exchange. Information is extremely valuable, but also very time sensitive in most cases. The way you get more info is by trading what you have. Or buying it outright.
Bitcoin is not an "investment", it is a means of storing value. That value will fluctuate just like EURUSD or JPYGBP. In fact, as we've seen, stress events like Cyprus are driving people to search wildly for any means possible to protect themselves, resulting in really wild fluctuations in BTC.
That doesn't mean BTC is bad, or that it is good. It just exists.
EITHER your are storing fixed units of value OR the value of those units is fluctuating.
If both are occurring simultaneously, then what you have isn't a currency, it's an ongoing investment transaction (wager) and certainly not a means of storing value.
To use bitcoin a person must first allocate capital to accessory technology...well our glorious leader is handing out smart phones to those who can't allocate their own capital. The accessory tech IS given. Everyone else owns a smartphone, just look around at the people in restaraunts or driving their cars. The technology is ubiquitous. Only the dinosaurs dont have them yet.
Bitcoins convey a certain anti-establishment viewpoint...therefore if a person doesnt like bitcoin it stands to reason that they must like centralized authority and the resulting tyranny.
And finally... AU and AG have a comparative advantage over bitcoin... /sarc therefore I refuse to understand bitcoin, appreciate it for what it can do, and ponzeeeeeeee. end /sarc
Yeah, it's a hologram... not at all like what we have now... Doh !
Disagree. Electricity.
The other variable that NO Bitcoin advocate seems to want to address, Bitcoins are highly vulnerable to government intervention.
People need to consider how much it helps the Governments and Central Bankers for people to "invest" in scams like bitcoin rather than physical gold and silver.
I doubt it makes a difference. All of the gold and silver is being bought, by someone, somewhere. It's not like there are massive inventories of silver coins and bullion building up at the mints. It's just a matter of who is buying it, and what price they pay.
You mean as opposed to crushing the bid on gold, as ZH has shown has been happening for decades now? (Article a few months ago showing that if you bought gold at the open and sold at the close, you'd be up some ridiculously insane percentage as compared to holding it overnight -- because the central banks have been deliberately punishing gold for years to scare people away from it.)
Elaborate, if you're so knowledgeable. Step in the ZH ring with facts & info. [Ding]
[crickets]
Not this guy. That's exactly where the wheels come off, if and when they come off. Not like Gold is immune to this sort of government intervention, but BitCoin is much more reliant on exchanges (MtGox, for instance) that could be shut down by such means. And there are multiple other ways it could be hobbled. The peer-to-peer aspect of BitCoin is much less developed (accepted and intuitively understood) than than, say, exchanging a weight of gold as payment (that has thousands of years of exchange history behind it and is RADICALLY more distributed geographically and culturally).
BitCoin was started in Japan. MtGox is in Japan. Japan is on the verge of a shit storm both monetarily and possibly militarily. Most exchanges of BitCoins go through MtGox in Japan. Do the math.
I told everyone here I was going into it as "research" and I have. My findings so far: there ARE problems in BitCoin world. They are numerous. They may survive despite those problems. They may not.
If there is only one thing you should know from my experience it is this: virtual/digital currency is a SERIOUS threat to central banks everywhere. And I do mean serious.... but not now. Maybe in 10 years. Maybe never. But if you sit in front of your screen at ZH in frustration at what central banks are doing day after day (as most of us do) please realize that the idea of independent virtual currencies pushes against that kind of manipulation by it's nature. They may not be our friend but they are not exactly our enemy either. They're just...... fucking different. They ain't anything like gold, they ain't anything like dollars, they're...... something else. If I could explain it further, believe me, I would.
Please don't just piss all over it because you can't hold it in your hand. You probably don't hold all the dollars you own as physical currency, either. Gold you can, and that's where it's "physicality" advantage shines through.
What's my gut tell me about BitCoin? It's the 'MySpace' of virtual currencies. It will peak, collapse, become irrelevant and be replaced by something else. But the idea of virtual currency is probably not going to be killed- it will live in some other form that appears to come out of nowhere (probably some MIT or Harvard dropout's dorm room). Ultimately, it will be accepted by governments and then it will become like any other manipulated currecy- full circle back to "powers that be" controlling it. Enjoy the ride while it lasts because it won't last forever.
All it REALLY is is a couple of guys over on Second LIfe, who wandered off the reservation....
BitCoin- Those "Dungeons and Dragons" dudes open a bank......
That ain't far from the truth, actually. Just remember those D&D freaks are the same guys who are probably running the HFT algos today. So..... never undrstimate the ability of geeks to take over significant portions of the world.
@NoDebt
I agree with you that BTC is analagous to mySpace. BTC is an introduction to decentralized payment transations and financial disintermediation. But, it has serious flaws and will be overtaken or subsumed by another system like Ripple or something not yet in existence.
> serious flaws
Such as? Pics or it didn't happen.
Of course, Fed could mine bitcoins themselves and then manipulate the price.
Would be hard to do with ~1% of the money supply.
How?
Really, I am asking, they can't stop you using it for personal trade. Any laws they implement would require that you voluntarily comply and you would need to actually declare that you hold them.
Portability also becomes a challenge when digital goes dark...
Good luck keeping your food refrigerated once that goes.
If one hasn't implemented a plan on survival w/o the grid electricity... well, best of luck.
That's nice in theory, but won't work for the millions living in say New York or London.
It sure as hell won't! Woe unto them. I think they got a little dose of reality with Sandy.
Below is the sum total of what the unprepared learned from Sandy:
.
Oh, a few people probably became painfully aware of the fact that Uncle Sugar wasn't there straight away with the skittle shitting unicorn... ditto Katrina. A crises-driven society, says I.
They're hashes they don't need electricity to exist, just like the numbers in your bank account.
This is such a shit argument too, if electricity was gone to such an extent to halt bitcoin transactions, bitcoin would be the last of your worries.
And in that case, holding physical gold and silver, being able to barter for food and water won't be one of my worries. Mabe you can sharpen the flash drive with your bitcoin wallet saved on it into some sort of weapon in order to procure your dinner.
I lol'd. I do wish all due success to anything outside of .gov's monopoly. I hope folks profit from whatever trades they make w/Bitcoin, though it does seem a bit ponzi-esque imho. But, "honest & sound money", it is not. & the fact that FRN's are not lawful money (vs de facto, "color" of money) is not lost on me either.
A ponzi is when something is sold more than once to more than one person isn't it?
I thought the whole peer to peer "confirming the transaction" tech behind this is specifically confirming that the coin HASN'T been sold twice.
Hence if so, it is not a ponzi.
I don't depend on a bank account either. Nor do I count on the electrical grid always being there. Self-reliance has its rewards. No worries at all. :)
The vast amount of people out there are not like you, and depend on their credit cards for daily purchases. Imagine if those stopped working overnight.
But those who sit and loudly proclaim that they "stack their PMs" (while posting misguided opinions about stuff they don't know much about) doubtfully fully appreciate that their lives would instantly be transformed into a living hell, would gold be the only medium of exchange, where a struggle for survival would be the norm rather than the exception.
Don't put all your eggs in one basket is all I say.
I suspect many in the precious metals as a prudent store of wealth are more conscious than the CC crowd. Preparedness definitely isn't one-dimensional. Most, I suspect, have their "beans, bullets & band-aids" (or what-ever vernacular is applicable) in order prior to allocating for wealth preservation. It is precisely those former items that become really valuable after a catastrophe. Look at the fuel market post-Sandy, especially after .gov (e.g. NJ) insituted rationing & price-controls. Ammo & mags, etc., have turned out to be one of my most prescient investments!
My heart would go out to the poor Gotham-dwelling, CC-using masses if an extended grid-down event were to occur, as it does for the Cypriot euro depositors who went to sleep rich and woke up poor. Some lessons hurt more than others.
judging by lots of posts here on ZH, I wouldn't make that assumption. It appears lots of posters are actively looking for the collapse, beliving after the systemic reset that they will be rich because they've got gold and silver.
rich. to buy what, exactly? food will be scarce, fuel non-existant, and our formerly friendly neighbours would rather see your blood than let their children go hungry for a 3rd day running. our formerly quiet, peaceful lives would be transformed into a dystopian nightmare in an instant.
be careful for what you wish, you just might get it...
Good point. One I've made myself here several times, saying "Anarchy is only fun in the beginning."
So the point is to spend it now...I'm goin to Vegas
I'm an "apocaloptimist" ("knows it's all going to shit but feels good about it anyways"). A correction is coming, and it is necessary. How long can the world let a cartel create "money" from nothing? Sheesh! Although I have no idea and try to prepare for any probable eventualities, I suspect a fiat currency collapse would be a great thing for society. Ditto for the end of nation states (good riddance!). Anarchy is not chaos. Anarchy is what Bastiat referred to as Spontaneous Order, and that is a beautiful thing. Central planning, social engineering, servitude, etc., are what is causing all the ills in society.
Nice.
Right, every node has a copy of the blockchain (history of all transactions) on its harddrive, so the "account balance" does not disapper without power.
One word, E.M.P.
Don't be such a simpleton. If an EMP knocks out power, your problems will be FAR bigger than Bitcoin, ATM's or even gold coins. In the first days and weeks, NO one will give a shit about your coins. Precious or otherwise.
YEah.. because storing your wealth in something that could actually be useful in the event of such a calamity is stooopid. /s
There was another Bitcoin article here recently that stated "Bitcoins are 1/2 of a completed transaction. Until they are sold, you are out.." or something to that effect. Listen, if one wants to play/trade w/Bitcoins, more power to them. But a fail-safe store of wealth they most certainly are not. Get your preps prioritized and then put your wealth preservation into something that has had historic value (e.g. gold, silver). If, after that, you've still disposable funds with which to gamble... best of success!
Totally agree Dane. I'm all for Bit Coins for fiat, untraceable and all that, as long as everyone understands they only represent money ie. gold or silver
Yeah and you'll drive away from an EMP zone in exactly what?
Your car is chock full of electronics, sure to fry under those circumstances just as well.
Lack of electricity doesn't render bitcoins perishable. They're stored on every node's copy of the block chain and their backups. Lookup "non-volatile memory". The moment electricity comes back on, trading resumes. If electricity never comes back on anywhere ever, you might have a point, but then we will all be living in the stone age.
Bigger problem: Internet gets segmented for a week. Blockchain splits in two on opposite sides of the Internet disconnection. Once the Internet goes back on, boom, all your transactions disappear because the other side of the network has more hashing power.
What I like is the homeless guys are fucked also..........
maybe someone else sees throught the propaganda and decided to speak.
bitchcoin...LOL
maybe someone else saw the propaganda and decided to speak.
bitchcoin...LOL
Bit coins? Are they anything like tit-coins? You know, the coins that have tits on one side and a well rounded
butt on the other side. They are okay, if they are made of silver or gold.
You can certainly spend them on T&A. http://www.reddit.com/r/girlsgonebitcoin
"Prima facie, bitcoins possess all the qualities required from a money (a generally-used medium of exchange). They are perfectly homogeneous, easily cognizable, conveniently divisible, storable at practically no cost, and imperishable."
So if they made Garbage Pail Kids cards out of tougher material (such as modern fiat is made from), they would be considered currency?
I'm still looking for somebody to make me a 30-year home loan, payable in Bitcoins.
All the qualities of money--like a generally used medium of exchange?? I must be missing something. How are bitcoins a generally used medium of exchange?
I'm pretty sure that if I fill up my car with gas, my local station is not likely to accept payment in bitcoins. The response would "Huhh?"
my local station is not likely to accept payment in bitcoins.
Shit yeah! If it isn't deply embedded in the status quo, it's utter crap!
The truth is, if you were to look up the definition of a "Late Adopter" (of a product, service or behavior) in the Marketeer's Dictionary, chances are... you'd see the picture of a Redneck. Need we argue further? ;-)
Cigarettes have many of the same characteristices, and I suspect will be more useful as a "medium of exchange" over the next 10 years.
Perhaps if you're a prison bitch.
Bitcoins enable instantaneous transfer of funds without including the banks.
If you found a simliar person who valued GPK cards as you do, and you used them to pay your GPK friend to mow your lawn, then yes, I would say that that transaction used a GPK card as a currency to facilitate the contract/business between the two consenting parties.
Your point being?
Bitcoin is faith, like many other things. We need more competing currencies, although 'mediums of exchange' is probably better wording. A true, legitimate currency has to be backed by something other than faith.
Gold, silver, oil, water, land, ammo, food, etc all have true value, whether survival value or historical value.
As is gold. If no one wanted gold tomorrow, that would effectively be worthless. It's premise is history, but history has to start sometime.
The only things arguably which aren't fiat are food, shelter, and bitchez!
Gold has been money since our earliest documentation, 5,000 years ago.
As I said, a currency needs to be backed by a medium with historical, survival, and/or economic value.
Bitcoin has more in common with monopoly money than it does with gold.
There is no such thing as 'value' outside of your mind, unless you agree with the Ricardian labour theory of value, which to me is total shit.
Really? No value outside of one's own imagination? How the fuck do you get to work in the morning, eat, etc? The power of your own mind?
Still looking for someone to make me a residential mortgage loan payable in bitcoins, perhaps you are a lender?
Didn't think so. No one will exchange spot US Dollars for future bitcoins, even if the loan is backed by real assets.
i already said that food, shelter, and women are essentially when it comes down to it the only non-fiat entities. i wasn't talking about bitcoin.
do you even know what the ricardian labour theory of value is all about? your post indicates nothing of the sort.
I can appreciate your point about value. Many folks speak of intrinsic value, though the labor theory of value is bullshit as well. I hold that all value is subjective. Example: if you are dying from dehydration I guarantee you'll value water above all else. Gold does have an extremely long and consistent history of having subjective value. It isn't too difficult to invest in other areas that would be very low-risk for losing their subjective value. One simple commonality of all these things, for me, is that they are tangible. A virtual store of value is a bit (pun intended) esoteric for my tastes.
Judging by your posts, you've not a clear understanding of what "fiat" means. Fiat has nothing to do with valuation and 100% to do with dictation, government dictate, that is; fiat - A formal authorization or proposition; a decree.
fair enough - as you read continuous debates about gold, bitcoins and whathaveyounot, your definitions become a bit blurred. fiat is indeed about decree, and not about belief. thanks for that.
my main point however was that intrinsically, the only things truly worth something are essentials. once they've been catered for, we tend to value things which matter to us personally, which individually differ. and if we all suddenly decided that gold just wasn't cool, then it would be effectively worthless. that's obviously an entirely theoretical proposition, but in reality it'd probably work out just the way you'd be instantly bankrupt if you set up a shop in Piccadilly Circus selling VHS tapes.
YW &1 up. :)
Indeed, there are absolutely no strict guarantees when it comes to value (even with "essentials") but, at the same time, it isn't that complex. Or, at least, I prefer to keep it simple. With Bitcoin, it is simple for me as well; it is man-made. Bitcoin is better than USD$ in that it is at least not of infinite supply. However, an infinite amount of competitors could create the exact same thing. Perhaps Bitcoin could even be the Betamax to their VHS? Unless some crazy advances in alchemy soon occur, gold has the type of scarcity (among other things) I desire.
Gold is the money of kings, silver the money of gentleman, barter the money of peasants, debt the money of slaves & .. bitcoins? ;)
Exactly, we humans are such hubristic beings.
We "create" gods, we "give" value to dead stuff, we "give" authority to the government to rule over us, etc...
Those are simply concepts, and nothing else. There is no EXISTING counterpart in reality for any of those concepts.
We act this way because we are at the top of the foodchain, and life is good.
But do people even reflect upon the fact that for everything we eat something has to die?
Hey Robot Mom, I'll give you a bitcoin if you change your avatar.
I take that as an insult, considering it is my best picture :)
PS-Have you seen my son? His portfolio is long AAPL, NFLX, and Bitcoin.
Reminds me of the joke with the genie and three wishes. Be careful what you wish for
Bitcoin is passe.....
litecoin bitchez !
You don't get to be old being no dumbass. There's a lot of young wise men, de deader than a motherfucker...paraphrasing Richard Pryor.
.... Bottle caps. Life imitates art.
Yes. We've come far from seashells. Isn't it marvelous?
I'll take seashells. At least you can hold them in your hand.
OK. Where should I send the seashells?
Another bitcon article?
+1 but the best one by far.
It appears as if Tyler has started mining BTC articles.
Sad how far ZH has fallen. Maybe next we can get into investing in reverse mortgages and snake oil.