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Bitcoin - A Cost-Benefit Analysis

Tyler Durden's picture





 

David Woo's earlier discussion of the 'maximum' fair value for Bitcoin, we thought his colleague Ian Gordon's view on the advantages and disadvantages of the virtual currency were worth noting. Woo believes Bitcoin can become a major means of payment for e-commerce and may emerge as a serious competitor to traditional money transfer providers. As a medium of exchange, Bitcoin has clear potential for growth, in his view, but its high volatility, a result of speculative activities, is hindering its general acceptance as a means of payments for on-line commerce...

 

Via BofAML's Ian Gordon,

A cost-benefit analysis

Money/currencies are generally thought to have three distinct roles: as a unit of account, medium of exchange, and store of value. To the extent that Bitcoin offers users many benefits and efficiencies as a medium of exchange, this means it possesses some fundamental value that may increase over time as it gains wider use. However, as a unit of account and store of a value, it has considerable shortcomings which we believe will ultimately hinder it from ascending to international currency status. In this section we will review Bitcoin’s advantages and disadvantages in more detail.

Advantages

As a medium of exchange, Bitcoin is attractive as it offers low transaction costs. It does so by eliminating the need for a central clearing house or financial institution to act as a third party to financial transactions. Using a decentralized, peer-to-peer network, transactions are verified independently by network users (i.e., miners) who are rewarded for their work with newly minted Bitcoins. In addition, it provides an alternative payment method to users who may not have access to credit or debit cards, or, other forms of electronic payments.

Bitcoin offers an attractive alternative to cash in terms of security, transparency of transactions, and counterfeiting. Bitcoins reside in an encrypted format on their owner’s computer, making it difficult, though not impossible, for hackers to access and steal electronically. Physical Bitcoin theft is also possible, but it seems no easier to carry out on a large scale than for cash.

In addition, given their digital format, Bitcoins are much easier to carry than cash, which could be a particular benefit in economies where large scale transactions are conducted in cash. Bitcoin also offers the benefit of being easier to track than cash given that each coin contains an electronic record of each transaction that coin has gone through since it was created. Not only is each transaction recorded on each Bitcoin, but all transactions are recorded in an online public ledger, offering a level of transparency that is not available with cash. Such transparency offers regulators means to track potentially illicit activity. Lastly, the digital format with automatic verification also makes it impossible to counterfeit.

There is a finite supply of Bitcoins. The design of Bitcoin seeks to mimic the supply of gold in that the system will create a finite supply of the currency, which its proponents see as a way to protect its value from profligate governments or central banks. The system is designed such that the supply of Bitcoins will increase over time until it reaches a total supply of 21 million. In order to achieve this target, the incremental supply of new Bitcoins will decrease geometrically by 50% every four years.

Bitcoin’s relative anonymity is advantageous to citizens of crisis countries. It has been reported that some believe Bitcoin can be used by those seeking to avoid evade high taxes, capital controls, and confiscation. For example, there was a sharp increase in Bitcoin interest on March 16 when Cypriot authorities, as part of their European assistance package, were prepared to implement a private sector haircut of deposits (Chart 5). Additionally, China has also seen a sharp increase in Bitcoin activity and now accounts for a majority of transactions when broken down by currency, likely reflecting the currency’s value as an outlet for those wanting to avoid capital controls or potential confiscation (Chart 1).

“Winner Takes All” market ensures that increasing acceptance and popularity of Bitcoin increases likelihood of success. As Bitcoin becomes more popular, competitors will face higher barriers to entry, making it less likely they will be successful in supplanting Bitcoin’s market share. Several other digital currencies with similar features to Bitcoin have been introduced with limited success. However, we believe the structure of the digital currency market is one of “winner takes all” whereby as Bitcoin becomes more popular and is easy to use, consumers will have much less incentive to experiment with an alternative currency with similar features.

Bitcoin offers large benefits (from an asset allocation perspective) given its negative correlation with risk sensitive assets, much like gold. For example, following the October FOMC meeting in which the market interpreted the statement as suggesting a less accommodative stance of policy than was anticipated, gold fell as much as 1% in the aftermath while Bitcoin fell 3%.

Disadvantages

Bitcoin’s role as a store of value is seriously compromised by its elevated price volatility. The dollar price of Bitcoin has moved 10% on a daily basis since its inception including days when the price moved 190% from that day’s highs to lows. It can be argued that these swings reflect shifts in estimates about the fundamental value of Bitcoin as more people become aware of it, or, use it. For example, the Bitcoin’s dollar price increased 50% to $785 following a Senate Hearing on November 18th after which a couple regulators took a more positive stance towards the use of Bitcoin as another form of payment. This is consistent with indications from European officials on Bitcoin. However, it is more likely a function of the highly speculative nature of the market which produces such unstable returns amidst very low circulation and poor liquidity as investors are enticed by the extreme return opportunities. High volatility also undermines Bitcoin’s role as a medium of exchange as large retailers are much less likely to accept it as a form of payment with prices so volatile (Chart 6). Stores accepting it now are effectively internalizing the costs of this volatility and not passing it onto consumers, but we would not expect such likely unprofitable practices to last.

Regulators could try to impose controls that would increase the transaction costs for using Bitcoin despite its efficiency and the transparency relative to cash. Firstly, the government is unlikely to want to promote a new currency that could be viewed as one that could help facilitate “black market” activities, or, tax evasion. As a result, regulators are currently thinking about how Bitcoin will fit into the broader payment and tax system, and what makes sense in terms of regulation. The bottom line is any new regulation will raise Bitcoin’s transaction costs, offsetting and/or eliminating one its main benefits. In addition, the ease with which Bitcoin can be used internationally increases the need for international regulatory coordination. While coordination raises the risk of an uneven regulatory landscape for Bitcoin, stringent regulation by a few large countries/regions would significantly increase the costs of using Bitcoin, thus limiting its usefulness as a medium of exchange.

The quality of Bitcoin exchange security, where consumers exchange dollars for Bitcoins (and vice versa) is suspect. For Bitcoin users not able to mine their own Bitcoins, their only alternative is to exchange their local currency for Bitcoins at an exchange. Aside from the FX risks these customers take, a large number of Bitcoin exchanges have been hacked with large amounts of customer Bitcoins stolen. In one reported case Bitcoinica, an exchange, lost 18,547 Bitcoins from its deposits after its systems were hacked. More recently, a European exchange called BIPS lost 1,295 Bitcoins (or $990,000) following a security breach. As the vast majority of potential Bitcoin users cannot mine their own Bitcoins, exchanges will be critical for linking local currencies with Bitcoin. Without deposit (FDIC) or investment (SIPC) protection, Bitcoin users/investors have little recourse to retrieve stolen funds so in addition to investment risk they are also carrying credit risk.

Seigniorage is currently accruing to the “miners” of Bitcoins who have the fastest CPUs. Over time this will undercut seigniorage as a source of revenue for the government as they do not control the creation of Bitcoins. This means the government will have an incentive to crack down on Bitcoin if it becomes too big.

A 50 minute wait before payment receipt confirmation is received will prohibit wider use. Fifty minutes is the time needed for enough additional blocks to be added to the chain to protect against double spending. This is less of an issue for two parties that know each other because they trust the other will not double spend, but when dealing with an anonymous counterparty this creates a high level of unhedgeable risk. As a result, in the absence of a central counterparty verifying transaction/clearing Bitcoin is likely to remain illiquid, and will prevent it from becoming a significant international currency.

Bitcoin’s use as an international currency will likely be hindered by the fact that it is not a legal tender. Unlike fiat money, nobody is under any obligation to accept Bitcoins as a mean of payment. Therefore, its value is only as good as the perception of its worth by its users. Without a backstop buyer, Bitcoin could disappear very quickly should perceptions of its usefulness decline. Repeated bouts of volatility and further cyber-attacks which put consumer and investor money in jeopardy will certainly inform this perception even as Bitcoin does offer many benefits. Some aspects of the characteristics of Bitcoins (e.g., it is not centrally cleared and there is a confirmation delay) makes us doubtful about its potential in the OTC market (where most FX trading turnover is executed), even though we cannot rule out that a non-deliverable forward market could emerge.

 


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Thu, 12/05/2013 - 18:05 | Link to Comment l1b3rty
l1b3rty's picture

Making predictions about this stuff is quite arrogant. It is so new and wild, I don't think we can really know. But, if BTC sustains the DDoS or downtime against a Chinese exchange, then it looks like we're getting ready for a new leg (up).

http://goldsilverbitcoin.com

Thu, 12/05/2013 - 18:05 | Link to Comment Dear Infinity
Dear Infinity's picture

The wolves of Wall Street have taken note...

Thu, 12/05/2013 - 18:07 | Link to Comment l1b3rty
l1b3rty's picture

I agree, which seems to be why we're holding $1000, DI.

Thu, 12/05/2013 - 18:16 | Link to Comment kushmere
kushmere's picture

First they ignore you....

Then they buy in at high prices...

http://bestbitcoinsites.wordpress.com

Thu, 12/05/2013 - 18:46 | Link to Comment nope-1004
nope-1004's picture

Then they get sheered.....

And left to their own devices......

Thu, 12/05/2013 - 19:02 | Link to Comment MillionDollarBogus_
MillionDollarBogus_'s picture

A Google search of ‘bitcoin theft' brings up a lot of history.

 

A big site called Sheep shut down last weekend after about $100 million in bitcoin was siphoned from various accounts.

 

Because of the risk of security flaws I don’t see how bitcoin can gain much credibility over time.

 

As the price rises, so will the cyber theft.

Thu, 12/05/2013 - 19:12 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

Yeah, that NEVER happens with DOLLARS, POUNDS or YEN.

You must be due for an enema, because all the shit coming out of your mouth is really foul.

Thu, 12/05/2013 - 19:56 | Link to Comment nmewn
nmewn's picture

"Yeah, that NEVER happens with DOLLARS, POUNDS or YEN."

Well, wait a minute, did it happen or not?

This opens up a whole nuther can of worms (if true) because one of BitCoin's major "selling points" is its security among "the community"...so are the stolen BitCoins going to be made worthless as stolen property or confiscated when someone tries to use them across the web?

And who is tasked with that...fonestar?...lol.

Or are you going to rely on the state to enforce property rights? ;-)

Thu, 12/05/2013 - 20:45 | Link to Comment dark pools of soros
dark pools of soros's picture

all you guys love the old time free world and forget how wild the wild west was..  you all would be little girls in bonnets

 

Thu, 12/05/2013 - 23:40 | Link to Comment digi
digi's picture

If someone successfully steals your shit, meaning they did it without identifying themselves to the world, then it's cash and someone unknowing of the theft will gladly accept it. Attempting to tag coins as stolen will prove futile as long as there is a demand for anonimity present in the market. The sheep coin loot is large enough to where it will take a considerable amount of time to "launder", but it can be done currently and the services and methods that allow you to do so are only getting better as time goes on.

Thu, 12/05/2013 - 20:53 | Link to Comment digi
digi's picture

"Because of the risk of security flaws I don’t see how bitcoin can gain much credibility over time."

Bitcoin has no security flaw. The flaw here is in the ineptness of the people trying to use it. The second anyone transferred their bitcoin to Sheep marketplace, well, they just transferred their bitcoins to sheep marketplace. They no longer owned them at that point. The fact that once sheep marketplace had recieved about 100 million dollars of users money that it would just, oops, come up missing, should have been no surprise to anyone with half of a brain. The beauty of bitcoin is that it is a trustless system when used properly, unfortunately this fact does not prevent people from using it improperly. It wouldn't be difficult to set up a marketplace that provided trustless escrow, but why do that when you have droves of idiots who are willing to just fork over their money no questions asked? The weak hands will learn the hard way and be cleansed from the system as usual. I see properly built black markets coming down the pipeline soon now that everyone has had their fair share of hard knocks.

Fri, 12/06/2013 - 04:51 | Link to Comment Tekrunner
Tekrunner's picture

Just so you know, 100 million is a wide overestimate of how much was actually stolen. The figure comes from a few redditors who tried to track the thief through bitcoin blockchain for days. Turns out they were actually tracking the movements of one of BTC-e's internal wallets, with 96k btc on it. The thief had used BTC-e to turn the stolen btc into something else, dollars or other crypto-currencies.

You can read that story first here : http://www.reddit.com/r/SheepMarketplace/comments/1rvlft/i_just_chased_h...

And then there: http://www.reddit.com/r/SheepMarketplace/comments/1s2upf/the_sheep_marke...

Pretty fascinating stuff, on several levels.

Fri, 12/06/2013 - 06:24 | Link to Comment zhandax
zhandax's picture

Sheep marketplace?

 

Someone actually fell for this horseshit?

Fri, 12/06/2013 - 01:17 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

And the best part, Dear Infinity, is that the Wall Street psychopaths can't naked short it into the ground. I'm sure it is driving them mad. They'd LOVE to rehypothecate it into a paper pile that you could spread around the earth ten feet thick. But bitcoin doesn't operate that way.

I'm sure they'll try later when Bitcoin becomes the obvious success story that it is currently trailblazing its way toward. That is, if they even have their jobs still.

Couldn't happen to a better group of complete A-Type Jackwagons.

Thu, 12/05/2013 - 18:06 | Link to Comment One And Only
One And Only's picture

Currency is thought to have a store of value? Like the dollar that has lost 98% of its value over the last 100 years? It's not worth the shit wipe it's printed on.

Thu, 12/05/2013 - 18:51 | Link to Comment Stuck on Zero
Stuck on Zero's picture

I love shit wipes and I resent your slurring my shit wipes with reference to dollars.

 

Thu, 12/05/2013 - 18:16 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

I don't know why these people are trying to predict this or that.

This stuff has one value and one value only, and it's fucking huge.

It is the protection from being Cyprused.  That and only that, but THAT is very big and very valuable.

This stuff is portable and it can't have borders sealed on it.  The game begins and ends with that, and it is more than a little astounding that the world's governments haven't figured this out and put a stop to it.

Thu, 12/05/2013 - 18:21 | Link to Comment jballz
jballz's picture

 

"It is the protection from being Cyprused.  That and only that, but THAT is very big and very valuable."

 

No, it's that, and it's really really easy to send people money.

1F4792XrPCwvBN4hxARjzK2qHrb5cCMraj

Done.

How is this not going to be the future?

It already is. Might as well get in now.


Thu, 12/05/2013 - 19:40 | Link to Comment CrashisOptimistic
CrashisOptimistic's picture

Somewhat saying the same thing I said, in that "people" would be yourself somewhere else.

But you do make a slightly different point in that Xoom and Western Union and whoever are going to be gutted by this.  No more commissions on sending money out of the country.

Thu, 12/05/2013 - 18:16 | Link to Comment jomama
jomama's picture

fonestar trolling in 3...2...1....

Thu, 12/05/2013 - 18:33 | Link to Comment negative rates
negative rates's picture

I think I saw him being taken away via meat wagon, he flatlined and has been in a coma ever since.

Thu, 12/05/2013 - 18:18 | Link to Comment chaartist
chaartist's picture

Its a joke. Today is absolutly insane. Ron Paul said Bitcoin can beat central banks, Mandela dies, Buffet sees bubble in bitcoin and China bans financial companies to work with bitcoin. People seem to become more stupid than central bankers. And I start to feel that we really deserve this shit if we can cover bitcoin as some serious alternative to anything more than monopoly game, second life or farmville.

Thu, 12/05/2013 - 18:38 | Link to Comment Spigot
Spigot's picture

And if the rumor of massed black vengence on white South Africans becomes a reality, do you think those White South Africans who flee would like to have access to their wealth where ever they might flee? If a hybrid UgandaxZimbabwe happens in SA, you have better be prepared...

Thu, 12/05/2013 - 18:57 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

One of the reasons ZH covers Bitcoin is because of all the bellicose and seal-barking trolls that foam at the mouth and fall over backwards at the mere mention of an alternative.

If you guys had some self-control, the Tyler(s) probably wouldn't even bother. All about the page hits, my friend...

Thu, 12/05/2013 - 18:18 | Link to Comment Non Passaran
Non Passaran's picture

Vol as a problem for btc was first pointed out by Nathan Lewis

Thu, 12/05/2013 - 18:52 | Link to Comment Stuck on Zero
Stuck on Zero's picture

And the only way to reduce volatility is to increase velocity.  That means more people trading.  Get shopping today.

 

Thu, 12/05/2013 - 18:18 | Link to Comment SmittyinLA
SmittyinLA's picture

bitcoin is a classic "pyramid scheme", investing in bitcoin is like buying a "block" in the old pyramid schemes of the late 70s.

Everybody's buying into bitcoin on the assumption they can sell to a bigger sucker for more.

Very soon everybody will realize bitcoin is as worthless as a taco bell receipt.   

 

Thu, 12/05/2013 - 18:30 | Link to Comment itchy166
itchy166's picture

No, everyone is NOT buying on the assumption they can sell for more.

Buy, transfer over border, and sell same day.  How much can be saved in time, fees, tax, and government intervention? Even with the high volatility its a good bet...

Thu, 12/05/2013 - 19:00 | Link to Comment jballz
jballz's picture

 

 

As someone who does a lot of online business and has to let paypal in on every transaction, and the ocassional unjustified chargeback, I cannot wait until bitcoin is standard procedure.

Vastly superior in every way. The downside IS the speculation, I know I won't be able to sell anything in btc until the price flattens because nobody will get off of them. But long term it is the obvious solution to most of my headaches. 

People who think it is a pyrmaid scheme haven't used it, that's all. Same clowns who said people would never buy books over the internet when Amazon launched. What...you can't thumb through the pages first? Bwahaha you morons nobody will go for that.

 

 

Thu, 12/05/2013 - 19:06 | Link to Comment Citxmech
Citxmech's picture

Fuck PayPal.

Thu, 12/05/2013 - 19:35 | Link to Comment TheHound73
TheHound73's picture

<<Very soon everybody will realize bitcoin is as worthless  >>

How soon, Smitty?  Bitcoin has been the best performing asset for 3 years running.

I find the technology to be groundbreaking and powerful.  I also speculate that businesses will soon come to realize the benefits of transacting between themselves using Bitcoin as a medium of exchange.  When that happens they'll have to go through me to acquire said medium of exchange.  I'm willing to take the risks of investing now and holding out for returns later down the road.  Doesn't matter what you think.  Frankly the more people who avoid BTC for now, the cheaper I can continue to acquire them.  


Thu, 12/05/2013 - 23:31 | Link to Comment Unpopular Truth
Unpopular Truth's picture

Smitty - PLEASE do not buy any bitcoin. It is only for informed people. Thanks.

Thu, 12/05/2013 - 18:21 | Link to Comment Yenbot
Yenbot's picture

Being a get-your-hands-dirty kind of learner, I undertook mining Bitcoin's little brother Litecoin this week. I made $0.16 in 24 hours while maxing my hard-drive until it was hot enough to fry an egg. Some guys heat their house with "bitcoin mining rigs".

Bitcoin et. al. are backed by PG&E and AMD, much as $ should be backed by gold.

Forget paper and cryptocurrency. Get real instead.

PS- I got a strange feeling all those hashes are solving blocks for You Know Who...

Thu, 12/05/2013 - 18:42 | Link to Comment TN Jed
TN Jed's picture

I thought the same thing about Bitcoin a few years ago when I got a quarters worth for 24hrs.  That .25 is now worth $31. 

Bitcoin is a source of angst for me.  I'd have $12.5 million now if I had bought what I could at $6.  Who am I kidding, I would have sold it all at $50 but still...ugh.

Thu, 12/05/2013 - 19:06 | Link to Comment Yenbot
Yenbot's picture

LOL Jed :)

Remember the Pyramid Game? They shut it down in California the week before my dear departed Ma would have been First Line.

For the rest of her life she'd say "I was almost THERE...".

Barnum's Law !!

Thu, 12/05/2013 - 18:24 | Link to Comment indio007
indio007's picture

50 minutes? Not in my experience. Verification speed is proportional to the amount paid fir the.transaction fee.

 

Thu, 12/05/2013 - 18:41 | Link to Comment Spigot
Spigot's picture

50 minutes to validate a transaction in the millions of $$$ from one side of the globe to the other ... sounds pretty damn good to me.

Thu, 12/05/2013 - 23:45 | Link to Comment digi
digi's picture

And if the person you are recieving from doesn't have access to 500million+ dollars of computing power then you are actually good in about 10mins.

Thu, 12/05/2013 - 18:36 | Link to Comment besnook
besnook's picture

volatility can be cured with a huge increase in supply, a massive split. security and portability are the problems.

Thu, 12/05/2013 - 19:17 | Link to Comment TheHound73
TheHound73's picture

Many people are moving to mBit pricing.  1BTC = 1000 mBit.  That's the only split you're likely to get.  

Perhaps you mean volatility can be cured with a huge increase in demand...

Thu, 12/05/2013 - 23:47 | Link to Comment digi
digi's picture

I'm holding out for microbits.

Fri, 12/06/2013 - 01:41 | Link to Comment TheHound73
TheHound73's picture

Yeah, 10.1 micros for a cup of joe sounds about right.

Thu, 12/05/2013 - 18:40 | Link to Comment Godisanhftbot
Godisanhftbot's picture

 We all know bitcoin is going to eventually supplant your stinking gold, your stinking dollars, your reeking yen, and your nasty euro's.

 

 Just bend over now and get it over with.

Thu, 12/05/2013 - 19:07 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

Actually it will complement a lot of things, but that isn't for you. You're more of an extremist ONE or the OTHER kind of dude, which doesn't work well in the real world. When you're brittle, you can't be adaptable when new things come along.

A lot of older people have this problem, and instead of actually assessing the situation and working it out, they tend to anchor themselves like barnacles to the tanker of FEAR that they're so used to.

Its sad, isn't it.

 

Thu, 12/05/2013 - 18:42 | Link to Comment Godisanhftbot
Godisanhftbot's picture

 Seriously, I'm enjoying the bc thing if only as a reminder of how many anii there are in the world.

its infinite

Thu, 12/05/2013 - 19:06 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

The only thing seemingly infinite is your gross misunderstanding of a technology that will completely change the world around you.

But you keep on nursing those sour grapes, you barking seal troll.

Thu, 12/05/2013 - 18:42 | Link to Comment Debugas
Debugas's picture

finally ZH recognizing the double-spending problem

 

"A 50 minute wait before payment receipt confirmation is received will prohibit wider use."

Thu, 12/05/2013 - 19:00 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

Yeah, I guess someone didn't do their research.

Its like an option with a specific delta, each confirmation increases the chances that your transaction is unique and not a double-spend attempt. You could realistically only accept one, two, or three if you had specific low-value transactions.

There is also the matter of pruning the blockchain at sufficient blockheights, but that goes into the inner blockchain mechanics, and most people here have trouble just turning their computer on, so I won't bother.

 

Thu, 12/05/2013 - 19:12 | Link to Comment wintermute
wintermute's picture

Correct, there are several different technical and commercial solutions (3rd-party escrow, green addresses, merchant insurance services, etc) which do/will exist to allow point-of-sale one second transactions to be safely executed.

As the Bitcoin ecosystem grows these will become normal added-value businesses.

Thu, 12/05/2013 - 20:09 | Link to Comment dracos_ghost
dracos_ghost's picture

And their not going to want to know who you are in case something goes bad?

Thu, 12/05/2013 - 21:11 | Link to Comment slyhill
slyhill's picture

think V and MA

Fri, 12/06/2013 - 10:22 | Link to Comment fallout11
fallout11's picture

...and with that, increase transactional costs. Much like the extra % included in any credit/debit card or Paypal purchase.  
In other words, not really any different.

Thu, 12/05/2013 - 18:42 | Link to Comment GreatUncle
GreatUncle's picture

Reckon the powers that be will outlaw it in the end for one reason.

If it becomes established it *will reveal how much currency is being created* by central banks globally and in some respects why the gold standard had to be crushed.

Thu, 12/05/2013 - 18:47 | Link to Comment Godisanhftbot
Godisanhftbot's picture

 better to put your trust in something  created out of thin air, that can be replicated in usefulness ad infinitum.

Thu, 12/05/2013 - 19:05 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

Yeah, you're one of those "IF I CANNA SEE IT, I DON'T WANT IT" kind of people. Yep, you're a complete fossil. Let us know how that works out for you, seeing how electronic representations of data and everything else that composes your trite little existence is whirling electrons on a storage medium, or bits flashed down the fiberous conduits between datacenters.

Go amish or something, and leave the real innovations to people who understand them, okay?

 

Thu, 12/05/2013 - 20:00 | Link to Comment TN Jed
TN Jed's picture

It's not the intangible aspect which gives us pause, but rather what always happens with opaque paradigms.  They suddenly become very clear and concrete chains. 

If you lean far enough forward without actually moving your feet, you eventually fall on your face.

Fri, 12/06/2013 - 01:21 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

Trippy TN, I guess all those years of acid really produced some intense world-changing trips for you.

Listen chemical boy, Bitcoin will be around whether you can wrap your addled brain around it or not. Time to get used to the future...

 

Fri, 12/06/2013 - 03:04 | Link to Comment TN Jed
TN Jed's picture

If the future is composed of hipster snark which only exists to convince oneself then consider me sold.  Because sometimes at night, when the air is still and ripe for moments of self-reflection, I can almost feel something for a second and then just as quickly remember zero shits are given. 

Thu, 12/05/2013 - 18:47 | Link to Comment ebworthen
ebworthen's picture

No, no.

ECommerce is the next target of the taxation authorities. 

Amazon has already relented to California's demands.

To be used for eCommerce Bitcoin transactions will have to be enumerated, tracked, converted to dollars, and taxed.

Once TPTB start sniffing out nodes, servers, methods of exchange, unique i.d.'s and transactions they will kill it.

I like the idea and the spirit behind it; problem being it is completely intangible and requires the N.S.A network to function.

Thu, 12/05/2013 - 18:48 | Link to Comment Godisanhftbot
Godisanhftbot's picture

I'm not selling my 10,000 bitcoin stash until you pay me 10,000 each.

Thu, 12/05/2013 - 19:03 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

Good, because that's a lowball number if I've ever seen one.

I'll be glad to take them off your hands after I'm a millionaire.

Thu, 12/05/2013 - 18:50 | Link to Comment JimmyRainbow
JimmyRainbow's picture

your hard drive does nothing in minig.

mining helps to build the infrastructure, thats the meta-effect.

there is genious in the idea to concentrate mining later in the creatin of the coinpool

and even that this sounds like "centralization", the concept is still a distributed database, which, after

spreading in the early phase is then to big to be manipulateable.

simply wow wow wow. and the miners which played world of warcraft and farmerama are now able to earn money

a friend actually makes 14-16 euros a day with 4-5 normal gaming graphics cores doing litecoins.

not much but more than nothing and definitely more than power consumption. and another aspect: he has 3 24/7 machines running without litecoins, why not plug in an additional card and earn some money?

hell, for computer addicts this is not a ponzi-scheme it is the philsophers stone. this is absolutely a dream coming true, "our" own currency.........

 

 

Thu, 12/05/2013 - 18:53 | Link to Comment Godisanhftbot
Godisanhftbot's picture

 no, its a grotesque waste of time, effort and computing power.

 Same energy could be used to figure out , say, what that is on Donald Trumps head.

Thu, 12/05/2013 - 19:01 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

I'm sure you think the Banking system, with its physical buildings, overpaid executives and the entire Federal Reserve system is a lean, mean, energy efficient machine?

What an idiot.

To say the computation power is "wasted" in the Bitcoin network just shows you know absolutely nothing about how it works. Each hash attempt actually goes towards ensuring irreversibility and securing the network against fraud, as each prior solved block is used as a basis to create the next one.

But hey, how else do you handle a barking seal-troll -- here you go, have some fish you moron.

 

Thu, 12/05/2013 - 19:06 | Link to Comment Godisanhftbot
Godisanhftbot's picture

 You been smokin' the hash holmes.

Thu, 12/05/2013 - 19:13 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

I think you know nothing about me, which is precisely how I like it. You know, just like your level of knowledge about Bitcoin, and anything else that uses current technology.

Let us know when you go Amish okay? I'm sure you have a fine career ahead of you making goat cheese.

Thu, 12/05/2013 - 19:15 | Link to Comment Godisanhftbot
Godisanhftbot's picture

 BB and AB.   Before bitcoin we were lost. After bitcoin  we are saved. Is that the party line?

Fri, 12/06/2013 - 01:24 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

"The Party Line"?

What is this, some re-run of the fucking "Honeymooners" where Ralph beats back the commies? Are you really that much of a fossil that you think its about EXTREME RIGHT AND WRONG?

The point is, GRANDPA, that new things come along. And if you can't ADAPT, you end up in the DUSTBIN.

Try to figure that out, if you can.

 

Thu, 12/05/2013 - 18:51 | Link to Comment Godisanhftbot
Godisanhftbot's picture

 97% of Bitcoin holders think its a Tulip and they will be able to find a bigger , slower moron.

 

 They are likely wrong.

Thu, 12/05/2013 - 19:17 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

100% know that Bitcoin has its ups and downs, has been declared "dead" by all media and barking seal trolls, like yourself, but somehow it keeps on going. I guess that's because its viability isn't in your ancient shaking hands. That's a good thing.

As for "the greater fool" theory, you clearly don't understand any of the dynamics of the system, much less the wide world of trading in general. You might as well be lobbing criticism at the Large Hadron Collider, another piece of tech that you have zero ability to comprehend and/or evaluate.

Again, being a complete castoff in a little shack somewhere in the mountains sounds ideal for you, at least the animals won't criticize you for being a complete idiot.

Thu, 12/05/2013 - 20:55 | Link to Comment WallowaMountainMan
WallowaMountainMan's picture

" at least the animals won't criticize you for being a complete idiot."

they do here.

especially the butterflies.

 

:)

Thu, 12/05/2013 - 19:16 | Link to Comment Godisanhftbot
Godisanhftbot's picture

 Hey, does anyone ever get lucky and hit a mother lode mining BC?

Thu, 12/05/2013 - 19:17 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

Does your eliza-like bot of barking seal trollery ever stop?

Perhaps not. I could replace you with a shell script, and nobody would notice. Take some meds and chill out for a while, willya?

 

Thu, 12/05/2013 - 19:46 | Link to Comment Rock On Roger
Rock On Roger's picture

EM you are the only barker here, why don't you lay off a bit. You're acting like it is time for mommy to put you to bed for the night.

 

Stack On

  

Fri, 12/06/2013 - 01:26 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

Given that you've decided to co-opt some idiot from "Futurama" I guess I should give you a break.

Hah. Not likely. Take your "stacks" and go play behind the house, the adults are talking.

Thu, 12/05/2013 - 19:18 | Link to Comment Pesky Labrador
Pesky Labrador's picture

I am not a BTC person but if what this video decribes is accurate, then what?

https://www.youtube.com/watch?v=PfeA94BedQI

Thu, 12/05/2013 - 19:28 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

Wonderful, another droning voice on a youtube channel. He begins with "Obviously its a speculative bubble", ignoring of course, that we've gone through SEVERAL of these over time, and are still standing.

Then he goes on to his core argument, the "Fundamental Design Flaw" which he starts out to say is a size problem, but then he says the real problem is the solution to having a large blockchain. Yep, people way smarter than this guy are already architecting the solution to massive growth.

The first approach is merkle pruning of the blockchain at a given height. This would compress the blockchain down to a different size, enabling lightweight clients and reduced user requirements. He of course, conveniently leaves this out.

Other solutions do include some SPV or super verfication nodes, but he goes on another tangent and says that OBVIOUSLY this will be all centralized, when it fact it wouldn't. He cites power and storage as the requirement, without even addressing the fact that the blockchain can be pruned and compressed.

Finally, he shows us his true colors and says "Don't treat Bitcoin as a stable long-term investment". AH HA, WE SEE NOW. Okay, he has zero confidence in the system to begin with, and with all of his glaring omissions of the potential solutions, I have to wonder about his personal agenda here.

There are technical solutions to what he's talking about, and it isn't the world-ending kind that he'd love it to be.

Sorry, nothing to see here...

 

Thu, 12/05/2013 - 19:33 | Link to Comment Pesky Labrador
Pesky Labrador's picture

Thank you for your comment.

Thu, 12/05/2013 - 20:24 | Link to Comment dracos_ghost
dracos_ghost's picture

Hmm, except aren't all the techniques you suggest considered "Hardfork Wishlist" https://en.bitcoin.it/wiki/Hardfork_Wishlist. Which means Bitcoin 1.0 holders might be shit out of luck when Bitcoin 2.0 comes online.

Fri, 12/06/2013 - 00:19 | Link to Comment digi
digi's picture

A hard fork of bitcoin creates 2 copies of the blockchain, the market then chooses the one it feels is correct. Both forks stem from the same chain so bitcoin holders won't "be shit out of luck", your coins will be present in both versions of the fork.

Fri, 12/06/2013 - 01:27 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

I guess someone isn't familiar with what a "Fork" entails. You have to convince the ENTIRE NETWORK to switch.

It doesn't mean that your holdings are AUTOMATICALLY INVALIDATED. But, seeing how you can't discern that fact, I guess it must be confusing to you.

 

Fri, 12/06/2013 - 01:33 | Link to Comment akak
akak's picture

Fork you!

Fri, 12/06/2013 - 11:39 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

@akak

So THIS is what you mean by being an upstanding member of ZH, "adding to the conversation" eh?

What a shining example of your hypocrisy, a reply in the form of a pun indicating something offensive.

 

Thu, 12/05/2013 - 21:58 | Link to Comment YHC-FTSE
YHC-FTSE's picture

You're fucking kidding right? The growing size of the block chain as well as the problems encountered with mismatched block chains on distributed networks are serious concerns.  You talk blithely about "pruning" the block chain without mentioning the fact that it is the only way to prevent fraudulent "double spending" of BTC. 

Who the fuck are you going to trust to "prune" - expunge transaction, value, and ownership (a/c hash) records of the coins you might own? Some anonymous body on the net? The supposed reason why transactions can be trusted with BTC is because every transfer can be traced on the block chain back to the Genesis block - the very first one created with the record of the very first bitcoin created.  When you allow someone to mess with the blockchain, you are essentially allowing them to mess with everyone's ownership record of btc - to alter the history of transfers and created btc. Don't you understand that simple concept after all your posts on bitcoin?  

There are people on ZH who have far more technical experience with crypto currencies and finance than you will ever have, and while I am not an opponent of the concept, I have expressed legitimate concerns about bitcoin from time to time. It doesn't matter anyway in the current climate,  even fucking Hendry seems to have thrown his reason away to pursue anything that is trending. Yes, you can make money on trends (until they become yesterday's bargain buckets), yes it is possible for BTC to survive long term - even a far worse ridiculous store of value and medium of exchange, fiat money, has survived this long. But for goodness sake recognise the risks in both design and manipulation.  If those risks are worth the returns to you, then fine, but you will get a fucking figurative spanking from ZH regulars if you try to sell your bullshit here.

Fri, 12/06/2013 - 01:33 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

Oh my YHC, you certainly "TOLD ME". Feel better? Did your personal waterloo come with party favors and cake when you were done?

Most people on ZH don't know jack or shit about cryptology, or even the basic computer science involved. Witness the piles of detractors that can't even type, much less understand what Bitcoin is all about.

And as far as pruning being wrong, I have a few people you might want to talk to - they maintain the current Bitcoin protocol. I know, they're just liars and you hate them for making you think REALLY HARD, but they know the pros and cons better than you're little addled head will.

As for your later statement - "there are people on ZH who have far more technical experience with crypto currencies"... oh really? Is that like the bullshit HR rep that asks you to have more experience in a programming language than it has actually existed? The only thing I see on ZH are a bunch of frightened old men that are scared their gold won't "cut it" in the future.

LOL, a "spanking from ZH regulars", you mean "a old biddy shout-out from some barker seal trolls". Yes, I'm quite familiar with the "skills" your "elders" have.

Oh man, what a fucking trainwreck this forum is.

 

Fri, 12/06/2013 - 00:15 | Link to Comment digi
digi's picture

That's quite a disappointing video coming from stormcloudsgathering. The page he cites as his source has the answer to the questions he is posing as insurmountable in the video. Anyways, it's not really a problem at all, a regular user doesn't need to keep the entire history of every transaction that has gone down since day one on their local storage. All they need to know is who currently holds what, these are called "unspent outputs". Just like when someone pays you in cash, you don't know the entire transactional history of the bill being handed to you and you don't really care, all that matters is that the guy paying you has it in his posession to begin with. This is the "pruning" that is being referred to and it relies upon no magical deity deciding anyones fate.

Thu, 12/05/2013 - 19:20 | Link to Comment Yenbot
Yenbot's picture

BBC: CHINA BANS BITCOIN

Fer real. Click on the link.

Thu, 12/05/2013 - 19:28 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

Yen-barking seal troll-bot, yes, we've read it already. And no, it isn't a full ban as your title playfully suggests. Perhaps be less of a moron? Thank you.

Thu, 12/05/2013 - 19:39 | Link to Comment TheHound73
TheHound73's picture

China bans Chinese banks from playing/manipulating the Bitcoin market.  China recognizes Bitcoin as a commodity, on par with gold, for individuals.  This is very good news.

Thu, 12/05/2013 - 19:30 | Link to Comment Richard Head
Richard Head's picture

Bitcoin is for retards. Exponere, go ahead and reply like all shills do to every negative post.

Fri, 12/06/2013 - 01:33 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

Seeing how your avatar immortalizes a certain cretin that has zero conversational or critical thinking skills, I'll just answer in the way you're able to comprehend:

Ah huh uh uh uhhuhh uhhuh uhh uhh

 

Thu, 12/05/2013 - 19:46 | Link to Comment WallowaMountainMan
WallowaMountainMan's picture

"the system will create a finite supply"

 

 

and there you have it. the crux of the biscuit. if it is scarce, it must be valuable. if it is rare, worship is appropriate.

whether the system is the universe scrambling around itself to generate gold, or an intelligence authoring a map that has no bounds but is limited in space, to the extent that a culture worships those things at the expense of the plentiful, the common, will that culture fail. it has no choice.

 

:)

Thu, 12/05/2013 - 19:52 | Link to Comment Bunga Bunga
Bunga Bunga's picture

Seigniorage is currently accruing to the “miners” of Bitcoins who have the fastest CPUs.

Miners don't use CPUs anymore but ASICs. It's true, the more computing power a miner has, the more money he can make. The miner with the fastest machine wins more often, but not always. A miner with a slower machine wins less often.

A 50 minute wait before payment receipt confirmation is received will prohibit wider use.

First, you can't compare a cash transaction with a credit card swipe.

What is the cash clearing time in traditional banking? I think it is at least several days. In between there is counterparty risk and cost. Bitcoin reduces that to less than 50 minutes.  Bitcoin payment services do cover that 50 minutes, at much lower risk and cost.

Thu, 12/05/2013 - 20:19 | Link to Comment itchy166
itchy166's picture

I used to work for an Egytian company working in the Mexican side of the Gulf of Mexico, getting paid in American dollars into a bank account in Canada (where I live). 

I used to wish that the cash clearing time was a few days...

I wonder how many times the Bank of America took a percentage of the money as it travelled around, and how many times I was flagged for recieving money from Egypt through Mexico?

Bitcoin would have been substantially more efficient for my employer and for me.

 

Thu, 12/05/2013 - 20:00 | Link to Comment Yenbot
Yenbot's picture

I finally climbed up Mt. Gox and had a Revelation. I will now reveal it to you All:

Star Trek is virtual space travel, like Bitcoin is virtual currency, and XBOX is virtual reality.

Neil Armstrong was a real astronaut, like gold is a real commodity, like watching an enemy aircraft go down in flames is Real Satisfaction.

I prefer real women, real beer, and real aircraft. Paid for by Real Money.

 

Thu, 12/05/2013 - 20:02 | Link to Comment TheHound73
TheHound73's picture

All bids and asks on Mt.Gox are fully allocated, much like gold trading should be.  Strange times indeed.

Thu, 12/05/2013 - 20:37 | Link to Comment digi
digi's picture

Then why are you still talking to all of us virtual users on this virtual internet?

Fri, 12/06/2013 - 01:36 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

And yet you are typing your idiocy using electrons painted on a screen, stored in your RAM, and shot over the internet as packets of data.

Good going, grandpa.

 

Thu, 12/05/2013 - 20:00 | Link to Comment mijev
mijev's picture

Even the noisiest bitcoin haters (and ZH has a ton of them) should be putting one percent of their stash into btc. You know, just in case it turns out to not be an NSA plot. It's called speculation and in small doses it is quite healthy. Yes, it can crash and burn but if it doesn't, maybe you'll make some cash out of it and you can buy more PMs and be happy.

Thu, 12/05/2013 - 20:12 | Link to Comment Bunga Bunga
Bunga Bunga's picture

The longer they wait, the bigger will be the desire one day.

Fri, 12/06/2013 - 00:26 | Link to Comment digi
digi's picture

A few months ago at $100 per BTC I said that perhaps the ZHers would reconsider at $1000, I didn't think that valuation would come this fast but it does seem the amount of trolls has fallen despite the remaining ones becoming more vocal. Maybe the remainders will reconsider at $10,000?

Fri, 12/06/2013 - 10:32 | Link to Comment fallout11
fallout11's picture

No, because all valuation is subjective, i.e. what it is worth to someone else is not the same as what it is worth to me. A Van Gogh may sell for a fortune, but I certainly wouldn't pay that for it, while a turnip is obviously more valuable to a starving man than it is to a well fed one. As long as other options exist in a market, such is the way of things.  I do not "need" BTC's currently, therefore they have no more utility to me than yuan or pork bellies do.

Thu, 12/05/2013 - 20:22 | Link to Comment itchy166
itchy166's picture

As an investment blog, is that not the reason that Tyler(s) covers Bitcoin in the first place?

Thu, 12/05/2013 - 21:03 | Link to Comment Rock On Roger
Rock On Roger's picture

Bitcoin isn't an investment, it is speculation.

 

Stack On

Fri, 12/06/2013 - 00:49 | Link to Comment itchy166
itchy166's picture

There is no difference to a daytrader.  ZeroHedge caters to traders of all kinds.  FX market isn't exactly an investment either.

Fri, 12/06/2013 - 09:42 | Link to Comment sleigher
sleigher's picture

This is exactly what I have been saying.  I really don't get why so many are so violently opposed to bitcoin.  Don't gamble with what you cannot lose and other basic rules.  But putting a little here or there, even if it's a long shot, well you just never know do you.

Thu, 12/05/2013 - 21:35 | Link to Comment rgetty
rgetty's picture

This is my idea. How about a Bit Card? it would act like your debit card. you can open up an account that is numbered just like the swiss ones Amercans use to get, the put in your currency what ever that would be and use that. I dont agree with bitcoin having a dollar amount. The system is great and the main purpose is to destroy the banks anyway so why put a value on it, unless its just a scam. Just have an account and use that put your money there instead of a bank use that to buy and wire money. And yes fuck paypal they suck! what do you guys think?

Thu, 12/05/2013 - 22:24 | Link to Comment Brazen Heist
Brazen Heist's picture

Sooner or later, one of the many countries that has been fucked by the current monetary system (e.g. Greece or Cyprus) will perhaps adopt Bitcoin as legal tender, setting a precedent. Its bound to happen, just wait. When a country gets pushed into a corner enough by the sociopathic elite, it will rebel against the order. 

Thu, 12/05/2013 - 22:34 | Link to Comment logicalman
logicalman's picture

Bitcoin brings up a big question, regarding VALUE.

Before you can go anywhere you need something to compare to.

Think 'Relativity'

Is there really a frame of reference?

Just a thought.

Fri, 12/06/2013 - 12:04 | Link to Comment Exponere Mendaces
Exponere Mendaces's picture

@logicalman

Good question, and since you haven't brought it up in the form of the usual seal-barking trollery that exists around here, I'd be happy to answer.

Currently, bitcoin is priced against various sovereign currencies. This alone does not confer value, but merely an avenue of trade. A way for people to convert their soon-to-be-useless-bits-of-colored-paper to something that has more utility and less government interference/meddling.

This is just part of the initial phases. Later, when end-to-end supply chains form denominated solely in bitcoin, then the REAL economy takes off, and Dollar/Pound/Yen/Yuan valuations are essentially meaningless.

That will be the true "golden age" of bitcoin, and it is slowly happening all over the world, as businesses start to first sell services/products using bitcoin, and later their suppliers will see the benefit and convert as well.

Appreciate the question, its a breath of fresh air in this den of trolldom.

 

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