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Bitcoin As An Alternative Currency? - Libertarian Vs Pragmatist
One question that keeps popping up, and was addressed to some extent by NAB's recent report, is whether all the elements of the current Bitcoin are necessary for a viable alternative currency. And, as Citi's Steve Englander asks (from a libertarian and pragmatic perspective), if they are not, or can be improved on, where does that leave Bitcoin’s first mover advantage?
Via Citi's Steven Englander,
The libertarian streak in me likes the anonymity of Bitcoin transactions, but there is a rational part of me that asks whether that aspect is essential if I am paying for a latte in Soho. Similarly if the Bitcoin wallet can be made more secure by dropping anonymity, how many transactors will give up transactional security for libertarian principle? Giving up anonymity may make Bitcoin transactions more secure, and I suspect almost all transactors will value security much more than anonymity.
Going further, Bitcoin’s decentralized nodes are not needed, if there was less concern about keeping Bitcoin outside the current payments/fiat currency system. The nodes allow transactions to be validated by the Bitcoin community, but you can have efficient transactions without the particular validation system used by Bitcoin. The secure ledger of transactions can be centralized rather than decentralized. Bitcoin’s particular approach may be attractive for those who really want to operate outside the current financial system. There may be both legitimate and illegitimate reasons for this, but the vast majority of transactions do not have this need.
Going even further, if Bitcoin or an alternative currency embraced the financial regulatory system to make it more secure, how much payments efficiency is lost? You can still have secure, instantaneous transactions but inside the financial system there may be more security against fraud and more recourse if your Bitcoins are contained in your PC which gets hit by a meteor.
So there is this story about a special recipe for potato fritters (a very good recipe that I have tried). When a chef is handed the recipe, she decides to ‘improve’ it by replacing each ingredient one-by-one with something more familiar. Having done so, she and her husband decide that the final result isn’t nearly as good as advertised and is pretty close to what they prepare all the time. In eliminating anonymity, decentralization and non-regulation, much of the original intent of the Bitcoin developer(s) is being thwarted. The question is whether the core innovation of Bitcoin has been compromised or whether unneeded baggage is being dropped.
For the record, mining Bitcoin is waste of resources from a social perspective. The amount of CPU and electricity needed to mine Bitcoin is high, and from a social viewpoint about as valuable as building defenses against attacks from Mars. What the mining does is decide the allocation of the limited amount of Bitcoin produced each period and encourage the ledger to be kept. There is a real social cost to the decentralization designed into Bitcoin.
If Bitcoin is a payments technology, much of what makes it efficient and attractive can be retained, while dropping some features that most users find unnecessary. Bitcoin may become less attractive to illicit users as a result, but that is a sacrifice many will be willing to make. Culturally, the developers of Bitcoin may find this evolution extremely unattractive, because the distrust of the financial system and of financial authorities was one of the motivations for its development. However attractive philosophically, many users will vote for pragmatism over principle and a Bitcoin clone that satisfied this pragmatic streak could be able to overcome the first mover advantage.
So far I have ignored Bitcoin as a store of value, but the proponents of Bitcoin as a store of value/speculation crucially need Bitcoin to be unique and have strong barriers to entry, despite the replicability of the technology. If it turns out that investors/miners will arbitrage between Bitcoin and other mined alternative currencies, the outcome will be that there are many perfect or near perfect substitutes for Bitcoin, and the effective supply will be much larger than would be suggested by the gradually increasing and ultimately capped supply of the original Bitcoin. This will mean that valuations will be very fragile because in the long-term there will be no ability to limit the supply of Bitcoin lookalikes ... unless some subset of Bitcoin-like currencies gain government/central bank endorsement which gives them an advantage over non-endorsed Bitcoin-like currencies.
Further, the Fed is now started on tapering and the BoE is talking about tightening, however slowly. Whatever sins major central banks commit, they are forgiven rapidly when they show any sign of moving back to orthodoxy, provided they have not hugely compromised price stability, and sometimes even when they have. Improved confidence in some G4 fiat currencies is giving gold bad days, and the willingness to take the risk on alternative currencies may be inverse to how unrestrained major central banks are in their reserves creation. Investors and central banks are looking for improved stores of value beyond fiat currencies, and Bitcoin possibly may be one of them. There are scenarios in which it could work as a store of value but there are clearly many, many outcomes in which Bitcoin is one of a bunch of alternatives with a very indeterminate value.
Bottom line, there is the possibility that Bitcoin represents a big step forward in payments technology, but there are also seem to be straightforward ways to improve on its security, make it less attractive to criminals and more attractive to governments. It is far from guaranteed that that it will emerge as a stable store of value. Either function would be enhanced if it were within the financial system and embraced by the authorities, but it is unclear whether the Bitcoin philosophy will change fast enough or whether an alternative alternative will pip Bitcoin’s original first mover advantage.
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Don't worry, people will be trading Bitcoin long after you are dead and buried.
Like Target was real secure because of banks. If they had used bitcoin their would have been about 100 million less security breaches. This guy is a total con artist.
two factor wallets are becoming common place so even if someday Target offers their own bitcoin wallet or whoever, as long as they make it two factor it will be fine. Always best to keep you lion's share in cold storage but two factor let's you keep small amounts in many different places online
bitcoin does come with a level of personal responsibilty which you would think many here would assume and accept.
haha what a joke. The whole point about btc is that it IS decentralised.
haha yeah right. Like it isn't already secure.
I think Englander is trying to invent a bank.
P.S Here is a report that trys to analyse the intrinsic value of bitcoin, (with relevance to investing in current payment providers (visa etc)).
Enjoy :)
www.scribd.com/doc/188644617/Bitcoin-Intrinsic-Value-Wedbush-Report-Dece...
Bitcoin is not alternative currency in any form or fashion. It is probably a form of money at this point. A bitcoin currency would be created if a bank created a bitcoin currency deposit (promise to deliver Bitcoin money) against either you coming to deposit your Bitcoin money in the bank or the bank creating Bitcoin currency against a bitcoin receivable (credit, good bills payable in bitcoin).
BITCOIN IS NOT A CURRENCY AT THIS POINT. The guy is a banker at Citi and does not know the difference between currency and money, no wonder we are in such a mess.
"Bitcoin is not alternative currency in any form or fashion. It is probably a form of money at this point."
"BITCOIN IS NOT A CURRENCY AT THIS POINT. The guy is a banker at Citi and does not know the difference between currency and money, no wonder we are in such a mess."
You make the two above statements and expect readers to believe you have any idea of what you are talking about? Clearly, YOU do not understand what money is. Bitcoin is definitely not money. Bitcoin does not even exist in the tangible world.
how about fuck off mate,
can we start there?
just sayin'.
What he is saying is that "when the receipt is the transaction" and irreversibility of transactions is socially acceptable for say "latte transactions" then banks can shed the cost of chargeback administration and all records will be publicly available (ala Zuckerberg).
First for lattes... then it's triple entry accounting for all Ricardian contracts turning the court system into a slave of the one central banking system. It's like a Staples Easy Button for fascism.
With his innovations they will be able to put the same remote lockout devices on real estate that they put on buy here/pay here car loans. Dropout Jeep for Toll Brothers. Rule of law meet HFT blockchain.
www.tradewithdave.com
Tell me, if Bitcoin is so solid, why is its marketing dominated with GOLD coins stamped with the bitcoin symbol, instead of symbols of the tech infrastructure which is its true instantiation in physical reality?
Because gold was the best monetary system in existence until bitcoin was created, think of it a homage.
surely you jest
We now know everyting we need to know about your intellect.
I think our disconnect here might be the fact that money is data. Always has been always will be.
The main drawback of Bitcoins - is algorithm.
Any algorithm can be changed explicitly or covertly.
Risk of changes in the algorithm in the future - this is the main drawback Bitcoins against gold.
If the intelligence agencies would be given such an order, they will solve this problem very quickly. Author Bitcoins itself will change the algorithm as he was told.
After that, he will jump out of the window. Or to him will happen some a tragic accident.
But gold does not have any algorithm. Government and security forces have no power over the author of gold. Because the author of gold - is God.
Who controls the code?
"He who controls the spice...."
The man who created the code, can control and change this code at any time.
And in spite of the fact that nobody seems to know who created the code bitcoiners adamantly believe it is safe and secure. Amazing. Could have been the NSA. Sounds like their doing to me.
Blessed are those who believe... in the next ponzi-coin! LOL
Who controls the code?
I know this is difficult for you to comprehend. But the real truth: You do.
right, with the picture of a unicorn.
Libertarian IS the pragmatic, fiat money printed by a crook monopoly is an idea so bad it needs to be enforced IS unicorn. While the crooks rule, you better stay as anonymous as possible. Liberty = pargmatic
12 major myths about Bitcoin:
1. The creator or creators of Bitcoin (which nobody knows anything) certainly crystal honest, absolutely unselfish and very decent people. These people never think about anything else, except for the happiness of all the other people around the world.
2. Crystal honest people who created Bitcoin, have no relation to the bankers and the power, that serves the interests of the bankers. Conversely, people who created Bitcoin, of course, are opposed to bankers, fiat money and selling power. How could it be otherwise?
3. Bitcoin is decentralized system! It is not necessary to prove this you just have to believe like in God.
4. Bitcoin system is absolutely safe! It is not necessary to prove this you just have to believe like in God.
5. Bitcoin system has no back doors! It is not necessary to prove this you just have to believe like in God.
6. System Visa, Master card and PayPal - it's business for the creators of these systems. Therefore, they take money for their services in the form of commission from the amount of each transaction. But Bitcoin system - it's just a hobby for its creators . Therefore, they do not take money for their services. They are unselfish, they good, white and fluffy.
7. Bankers, governments and intelligence agencies do not know who is the creator of Bitcoin. Therefore, they can not influence them.
8. People who created Bitcoin, do not need the money and they do not fear death. Therefore, they can not be bought or intimidated in order to provide access to system management Bitcoin.
9. Bitcoin PR company, which runs on all countries of the world and is worth billions of dollars, is only a free coincidence.
10. Plans of Bankers and government to rob the people savings, through the beautiful "market mechanism," are just paranoid fiction only.
11. Everyone who owns a Bitcoin becomes a fighter against fiat money system, which is also like Bitcoin , made ??out of nothing. Therefore, each owner Bitcoin has the right to be proud and consider myself a very clever.
12. Among those people who do not believe in Bitcoin and laugh at this Bitcoin flock, none of them are smart people. All of them are only enemies and fools. But among those people who holy believers in Bitcoin, none fool's, it is only very smart people.
There are so many flaws in your arguments.
1. Anonymity and secure are not diametrically opposed. When I pay for something with a dollar note or coin it's secure but the recipient doesn't need to have a form of id, address, etc. This has to do with people being able to maintain a certain level of privacy from the government about how they spend their money. If you don't care about the government knowing about all of your spending habits that's your choice.
2. Your views about decentralisation are antiquated. One of the key aspects of what one can call the 3rd industrial revolution has been the democratization and decentralisation of the tools for creation, making and distributing goods and services. The free market at its core is about individuals and groups being able to freely exchange goods and services for their mutual self benefit. You want to centralise their medium of exchange?!?
3. Your statement, "inside the financial system there may be more security against fraud and more recourse" is oxymoronic since it's precisely because people don't believe that their funds are more secure against fraud and have avenues of recourse that bitcoin and other digital currencies are considered valuable! I have two words that should make this rather obvious to you, MF GLOBAL!!!
4. Please someone tell me, what's the social value of mining gold and/or silver? Also what is the social cost of decentralisation? Hmmm. That central bankers cannot wily nily create as much of bitcoin as they desire to help their friends. How many of you out there consider this a "social cost"?!?
4. Yes, one of the key value propositions of bitcoin is as a payments technology. It's cost of transaction is far lower and available to anyone anywhere in the world 24/7.
5. As to its uniqueness, no it doesn't need to be unique. How unique is gold compared to silver? They both serve as money and often an individual or institution will accept one or the other as a form of payment. What matters is that their is a limited supply and with the other attributes that you stupidly dismiss as irrelevant is why it is considered valuable as a form of money.
Your whole discourse is just daft. Because you work inside the system, you're oblivious to the concerns of the general population and retailers for which in this context gives bitcoin it's value to the general populace and retailers. The only people that it worries is the those benefitting from central bank printing and their government cronies. Your hope is that it is made palatble to governments and unpalatable to everyone else since basically you think that the only people who would want a digital currency that the government cannot control (including travelling around without it being confiscated and being printed or the supply of which is increase at will) is criminals. No wonder you work at a bank!
Bitcoin is a platform and an infrastructure. People seem to refuse to open their minds to this possibility. Comparisons to crash and burn and pump n dump jokes like pets.com are childish and immature. A better comparison is to look at the adoption/growth rate and penetration rate of the internet itself not the success of some ridiculous enterprise that failed for obvious reasons. Oh I forgot, Krugman said the internet would have no more impact than the fax machine.
In Indonesia the mobile provider has basically seen the use of its internal payment system become a currency of sorts. 90%+ have mobile internet access there but less than 10% have access to banking/financial services. If a clumsy and sloppy points system from the local telecom can become a currency in essence then what could Bitcoin do in a country like Indonesia (4th largest population on the planet). I'll keep my mind open to the possibilities and let the market show the way.
Chart was in a precarious position but has done a lot of "hard work" the last couple of weeks. But, but wasn't the China thing supposed to kill it?
What an asshole. He positions himself as "having a libertarian streak" while "being pragmatic" about the "real issues" facing Bitcoin. In politics, this is standard (and it works, which is infuriating). Speaker begins by identifying with the audience ("Folks, I'm just like you. We share the same wants and desires.") and then, after "empathizing," he lays out the concerns facing "all of us" while qualifying every point with "in reality" or "thinking pragmatically...". This approach convinces most people to treat his concerns as legitimate concerns. Case in point:
"The secure ledger of transactions can be centralized rather than decentralized. Bitcoin’s particular approach may be attractive for those who really want to operate outside the current financial system. There may be both legitimate and illegitimate reasons for this, but the vast majority of transactions do not have this need."
Steven, we both know that "the vast majority of transactions do not have this need" and its called "centralization." There is no legitimate reason for the vast majority of transactions to clear on centralized ledger systems, there are however, numerous illegitimate ones. Logically, and pragmatically, we are left wondering as to the motivations of your ideology. To be clear, your fetish-like slobbering over centralized ledgers strikes those of us who operate in legitimate monetary systems as worrisome. Have you considered the social costs? They are very real Steven. Imagine a world where capital moves at the behest of a small few, would there not be gross wealth inequality? Would regulators of such centralization not asprie to join the select few movers & shakers? Would rating agencies use real, legitimate stamps, or rubber ones? How would we avoid multi-trillion dollar financial crimes? How on earth would anyone, ever, go to jail for rate-fixing? You see Steven, trying to dismantle legitmate monetary systems in favor of gross and utterly unnecessary social costs, is very much NOT how society progresses. Will you and your like-minded ilk's philosophy "change fast enough" to gain pragmatic and societal acceptance? It remains to be seen, but I'm a "good Democrat" and I have hope. Remember Steven, de-centralized monetary systems is the "one thing we all belong to" and being anti-social for personal gain is really tasteless.
"For the record, mining Bitcoin is waste of resources from a social perspective. The amount of CPU and electricity needed to mine Bitcoin is high, and from a social viewpoint about as valuable as building defenses against attacks from Mars."
Having personally worked at both a copper mine and an aluminum foundry, I can tell you it takes tremendous energy to produce metals in moving literally tons of earth around to extract the ore, the electricity required to plate out the metals, the energy to remelt the metals, and any further energy that is used to process the metal into its final product.
I would pose that a lot more energy was wasted through the millions of unnecessary houses built through the central bank induced misallocation of capital than could ever be wasted by mining bitcoins. According to the report below, 182 million MWh of energy were used in 2003 for aluminum production alone, whereas in the second link, bitcoin production uses approximately 365,000 MWh per year (1,000 MWh per day), a tiny fraction of the energy used in metal production.
http://www1.eere.energy.gov/manufacturing/resources/aluminum/pdfs/al_the... (p. 99)
http://techcrunch.com/2013/04/13/the-cost-of-a-bitcoin/
If people assign worth to bypassing the transaction fees by the middlemen in the banking cartel, my viewpoint is that the energy used in support of an alternative currency is certainly valuable.
What is money? It is what we agree it is. I defy anyone, even the more financially literate here to argue against that simple truth.
In that spirit, and with 'caveat emptor' in mind... proceed.
Gold, USD, Euros, Bitcoin, Light Sweet Crude, Seashells, Tulips.
They ALL need confidence and agreement to have value as a medium for exchange.
Wait... Light Sweet Crude (and friends) may actually have an advantage over all the rest, but then again, the utility it bears might make owning it the riskiest of all propositions.
Actual Milage May Vary
As usual, this article is clueless as to what money really is.
Money is "a promise to complete a trade". This is obvious by looking at the three steps of trading: (1) Negotiation; (2) Promise to trade; (3) Delivery on promise. In simple barter (and use of bitcoin or any currency is simple barter), all steps happen simultaneously on the spot. However, creation of money allows (2) and (3) to happen over time and space.
Money is created with the "promise to complete a trade". It is extinguished with delivery on that promise. In the meantime, when properly managed guaranteeing zero inflation, it is a store of value; it perfectly balances money supply and demand; it is freely created on demand (a trading promise); it is extinguished on delivery; and defaults are recovered through interest collections.
Digital currency with a workable cryptographic element making counterfeiting impossible will eventually win the day. But to do so, it "must" stand for a trading promise.
Bitcoin has no chance because it is not based on trading promises, it is based on wasted electricity. Further, it has no way of balancing supply and demand so we see wide gyrations in its value. And like PM, there isn't enough of it. It is deflationary by design.
Finally, it's laughable to think someone can gain security by giving up anonymity. They may gain efficiency. They may be able to insure against loss. But they won't gain personal security ... they will weaken it.
Who told you that "PM, there isn't enough of it"?
We have a huge surplus of gold and therefore difficult to use gold as money.
Not a question of how many tons of the asset we have. The question is, what is it money value of this asset. Make price for dollars as one gram of gold for one million dollars. And you will see a huge surplus of gold in the world monetary system.
There is also a "huge" number of traders in the world. In fact, there is about one trader per ounce of gold. And right now, people (miners) are willing to trade an ounce of gold worth of resources (labor, fuel, chemicals, machinery, etc.) to produce a little more than one ounce of gold. That pretty much sets its value. Right now, in dollar terms that's less than $1,500 ... petty cash for most traders today. If you arbitrarily change that value to something usable to back all trades and savings (say $1,000,000), you just drive more people into mining. It's much cheaper for them to try to produce new gold than to trade for it. This isn't rocket science. It's just obvious.
Bitcoin - are derivatives of the highest level.
So to say "the assets of the algorithm", which at any moment can be just turned off, in one click.
That is one of the dumbest things I've ever heard in my life. Bitcoin is the furthest thing from a derivative that can possibly exist except for perhaps gold. A derivative "derives" its value from the price of something else. There is no something else to base the price of Bitcoin on. Just like gold, Bitcoin is valued as a thing in itself.
The Bitcoin Channel
What bitcoin could have become died the minute "finance guys" started taking an interest. It's supposed to be a decentralized currency that you can just use without people trying to regulate, control, speculate, or profit off of. They're "bit" "coins" just spend the damn things on something you want and move along. Jeebus, they've turned the things into beanie babies.
I love Ayn Rand's mind but I always thought she was a little melodramatic. From Atlas Shrugged: "Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to be the tool by which men deal with one another, then men become the tools of men. Blood, whips and guns--or dollars. Take your choice - there is no other - and your time is running out." - Fransisco D'Anconia
Looks likethe crazy bitch was right!
What a stupid article.