Guest Post: Bitcoin - The Effete Act Of Rebellion

Tyler Durden's picture

Submitted by Ben Hunt via Salient Partners' Epsilon Theory blog,


Neil McCauley:

We want to hurt no one! We're here for the bank's money, not your money. Your money is insured by the federal government, you're not gonna lose a dime. Think of your families, don't risk your life. Don't try and be a hero!


"Heat" (1995)
 

Butch Cassidy:

What happened to the old bank? It was beautiful.

Guard:

People kept robbing it.

Butch Cassidy: Small price to pay for beauty.

 


“Butch Cassidy and the Sundance Kid” (1969)
 

John McClane:

Why'd you have to nuke the whole building, Hans?

Hans Gruber:

Well, when you steal $600, you can just disappear. When you steal $600 million, they will find you, unless they think you're already dead.

   

 


"Die Hard" (1988)
 

Cobb:

What is the most resilient parasite? Bacteria? A virus? An intestinal worm? An idea. Resilient...highly contagious. Once an idea has taken hold of the brain it's almost impossible to eradicate.

– "Inception" (2010)

Jimmy Dell:

I think you'll find that if what you've done for them is as valuable as you say it is, if they are indebted to you morally but not legally, my experience is that they will give you nothing, and they will begin to act cruelly toward you.

Joe Ross:

Why?

Jimmy Dell:

To suppress their guilt.

"The Spanish Prisoner" (1997)

"Is it true that you shouted at Professor Umbridge?"
"Yes."
"You called her a liar?"
"Yes."
"You told her He Who Must Not Be Named is back?"
"Yes."
"Have a biscuit, Potter."

J.K. Rowling, "Harry Potter and the Order of the Phoenix" (2003)

I hold it that a little rebellion now and then is a good thing, and as necessary in the political world as storms in the physical.
Thomas Jefferson (1743 - 1826)

I really can't think about kissing when I've got a rebellion to incite.
Suzanne Collins, "Catching Fire" (2009)

In the day we sweat it out on the streets of a runway American dream.
At night we ride through the mansions of glory in suicide machines.
Sprung from cages out on Highway 9,
Chrome wheeled, fuel injected, and steppin' out over the line.

Bruce Springsteen, "Born To Run" (1975)

So few want to be rebels anymore. And out of those few, most, like myself, scare easily.
Ray Bradbury (1920 - 2012)

Every act of rebellion expresses a nostalgia for innocence and an appeal to the essence of being.
Albert Camus, "The Rebel: An Essay on Man in Revolt" (1951)

I used rebellion as a way to hide out. We use criticism as fake participation.
Chuck Palahniuk, "Choke" (2001)

One of the first Epsilon Theory notes I wrote, and the one that really put this effort on the map, was about the modern meaning of gold. “How Gold Lost Its Luster” argued that gold today is not a currency or some sort of store of value; instead, it is an effective insurance policy against central bank error. That’s an Important Thing, just not as important as it used to be or as its more ardent proponents would have you believe. Today’s note is about the meaning of Bitcoin. Not its technical construction or its formal market interactions, but the behavioral WHY that gives Bitcoin its ultimate value. I caught a lot of flak for “How Gold Lost Its Luster”, and I expect some multiple of that for this note. So be it. The core tenet of Epsilon Theory is to call things by their proper names, even if that’s not the best way to make friends here in the Golden Age of the Central Banker.

Like gold, Bitcoin is neither a currency nor a store of value. Bitcoin is the cautious expression of a rebellious identity. Using Bitcoin is an effete act of rebellion, a weak signifier of resistance like wearing a hoodie or getting a tattoo that’s well covered by your work clothes. Bitcoin is fashion, more than a fad but less than lasting. Now fashion can be lucrative and fashion can be fun. Fashion is one of those intersections of art and commerce that I personally find fascinating (go ahead, quiz me on “Project Runway”). But fashion is not an Important Thing. Sorry, but it’s not.

As for the blockchain technology that underpins Bitcoin and is trumpeted as both an Important Thing and the Next Big Thing in every venture capital conference of the past two years, it’s a modern twist on the “technology” of the letter of credit. Color me unimpressed.

Strong words. Let’s dig in.

Bitcoin’s greatest attribute – its independence from every manner of organized social control – is also its fatal flaw. Bitcoin is a bearer bond. We all know what a bearer bond is, because we’ve all watched heist movies like “Heat” and “Die Hard”. Bearer bonds are the MacGuffin of choice for so many screenwriters because they side step all of those annoying plot questions when it comes to the logistics of stealing cash ($600 million in $100 dollar bills weighs more than 6 tons) or fencing stolen goods. By definition, there’s no registered owner of a bearer bond. If you possess it, you can trade it for value without your trading partner worrying about whether or not you are the “rightful” owner. 

Bearer bonds have a very similar legal foundation to a bank letter of credit, where the bank will release the contracted funds to anyone who presents the documents required by the letter of credit, regardless of whether or not there was fraud or theft associated with the underlying real-world transaction or sales contract. This so-called “abstraction principle”, where the bank is only responsible for validating the documents defined in the letter itself and has no responsibility for validating the underlying transaction, is what makes a letter of credit work. The abstraction principle limits the liability of the letter issuer when faced with an unscrupulous beneficiary (the person receiving cash from the issuer) and places that liability squarely on the applicant (the person giving cash to the issuer in exchange for the letter). For those who are interested in such things, the abstraction principle is a fundamental concept in German common law and has lots of interesting twists and implications. I can just imagine some clever merchant guild master of the Hanseatic League coming up with this idea in the 13th century and transforming international commerce for the next 1,000 years.

The abstraction principle is Bitcoin’s fatal flaw. If I possess the private key associated with a Bitcoin address, then I can trade that Bitcoin with any counterparty for value without the counterparty worrying about whether or not I am the “rightful” owner of the Bitcoin. The private key is the only “document” required to satisfy the abstraction principle at the legal heart of Bitcoin, and so long as that document is not forged (which is what blockchain is very good at preventing) then the Bitcoin issuer has absolutely zero liability to any party in a Bitcoin transaction, including the “rightful” owner of the Bitcoin. ALL of the liability associated with unscrupulous presentation of the documents associated with a beneficiary claim on a Bitcoin credit rests with me, the rightful owner of that Bitcoin. I have absolutely zero recourse if my private key is lost or stolen. I am, to use the technical texting acronym, SOL.

As you might imagine, banks don’t go out of their way to inform you of the liability assignments associated with the abstraction principle, and neither do Bitcoin service providers. It’s not that they hide any of this, but they also know full well that the legal principles surrounding letters of credit and Bitcoin are entirely foreign to our common experience. They know full well that our behavioral expectations in this regard are almost entirely determined by our experience with credit cards and cash accounts – two bank-issued products underpinned by radically different legal principles.

Credit card issuers have made a simple deal with the US government. Bank issuers can charge outrageous fees and rates of interest on their revolving loans, but they do NOT enjoy the protection of the abstraction principle on the underlying transactions made with these loans. If someone steals my credit card, then my maximum liability is $50. Period. The bank will undoubtedly try to shift a portion of the liability onto the merchant accepting the stolen “document”, particularly with a card-not-present transaction, but it is illegal for the bank to push more than $50 of the liability onto me, no matter how careless or stupid I was in losing the keys to my revolving credit account. This is why credit card issuers are so quick to freeze your account when you go on vacation and start charging in person (card present) in a new locale. They couldn’t care less about “looking out for you”. It’s entirely an effort to limit their liability at the expense of your convenience.

It’s a little more complicated when it comes to your cash accounts, because any nation’s currency is, in effect, a form of bearer bond. Neither the cash in my wallet nor the cash in my checking account is registered to me, and whoever possesses those physical cash bills can trade them for value without the transaction counterparty worrying about whether or not the possessor was the rightful owner of those bills. That’s not to say there are no limitations or liabilities associated with cash acceptance by a transaction counterparty – this is the entire purpose of anti-money laundering (AML) regulations and other capital controls – but on a fundamental level the abstraction principle is in effect here, as the currency issuer bears zero liability if my “documents” (the cash bills) are lost or stolen.

Or at least that’s the way it was back when Butch Cassidy and the Sundance Kid were out robbing banks. Whether Butch and Sundance stole cash or gold nuggets from the vault made absolutely no difference to the owners of that cash or gold. Whatever you had on deposit with the local bank was almost always uninsured, recoverable only if you put together a posse and got your money back from Butch and Sundance directly. Some banks maintained “blanket bonds” that would insure accounts from fraud and theft, but far more often these provisions were honored only in the breach.

That all changed with the Banking Act of 1933 (establishment of the FDIC and deposit insurance), the Banking Act of 1935 (essentially all banks under FDIC jurisdiction), and the Federal Deposit Insurance Act of 1950 (codification of our current system). Now obviously these laws and the entire notion of deposit insurance came out of the massive spate of bank failures associated with the Great Depression, not because we were overrun with bank robbers, and even today the FDIC does not directly insure deposits against theft and fraud. But with the FDI Act of 1950, the FDIC was empowered to require regulated banks (which means essentially all US banks) to maintain sufficient blanket bond coverage to make cash account holders whole (up to FDIC limits) for almost any source of loss. More importantly, for the past 60+ years the FDIC and every other organ of government has promoted the idea that, without exception, no one can lose a dime in an FDIC-insured account. Our government has well and truly become an insurance company with an army attached, to use the phrase popularized by Paul Krugman, and nowhere is this set of behavioral expectations more solidly ensconced than in the cash deposits of US banks. It’s no wonder we all have a soft spot in our hearts for the plucky thieves in bank heist movies. Whatever they’re stealing, it’s no skin off our collective noses.

There’s one more piece of legislation relevant to our story, and that’s the Tax Equity and Fiscal Responsibility Act of 1982.  This was the final nail in the coffin for the issuance of corporate and municipal bearer bonds in the US, as it eliminated the corporate issuer’s tax deduction for interest payments and the muni purchaser’s federal tax exemption for interest received. Both tax advantages were preserved for registered bonds, of course. I say of course because the US government, regardless of political party (the 1982 Act was in Reagan’s first term), has been trying to eliminate bearer bonds for a looooong time. Why? Because the US government believes that bearer bonds are at best a gift for criminal enterprises and at worst actively subversive. Whether this belief is right or wrong (and I think it’s mostly right), the notion that the US government will do anything to help a modern twist on the bearer bond under ANY circumstances is absolutely ludicrous.

So where does that leave us? It leaves us with an extremely elegant credit instrument that is almost immune to forgery or government registration, but because of this immunity it is permanently trapped by the abstraction principle within the world of bearer bonds and letters of credit. As such, Bitcoin is the apple of every criminal’s eye. Every modern day Butch and Sundance, every Neil McCauley, every Hans Gruber is trying to steal your private key. Some will succeed through violence and intimidation. More will succeed with words rather than guns, using what cybersecurity experts call social engineering. If you’ve never seen David Mamet’s “The Spanish Prisoner”, now would be a good time.

And because Bitcoin is hated by governments, it’s all on you to maintain the security of your private key. There is no insurance here, either directly through deposit insurance or indirectly through a blanket bond required of federally regulated banks. There is no “forgot your password?” button to push here, no regulatory or enforcement agency that will vouchsafe a service provider.

For some, the constant liability risk generated by the abstraction principle is – as Butch Cassidy said – a small price to pay for beauty. But for anyone with a serious amount of money who’s not in a criminal enterprise, this is an intolerably risky legal no-man’s land. Look … there are good reasons why bearer bonds have gone the way of the dodo. Are they illegal? No. Do they have an insanely poor risk/reward profile as a central part of any investment portfolio? Yes.

So why is Bitcoin popular, at least on its appropriately small scale? Because it IS beautiful in its technological conception and execution. Because it IS independent from and mildly threatening to the Powers That Be. Because it IS associated (albeit indirectly and at a safe distance) with criminal venues like Silk Road. Bitcoin projects an identity of technological sophistication, bad boy savvy, and a healthy suspicion of Big Government in a safe, palatable manner. That’s an identity that many people (including me) find attractive and would like to take on. It’s an identity that mainstream corporations that sell to those people, like Dell and Microsoft, would like to take on. Bitcoin is a fashion statement. I don’t say that to be pejorative. I say that as high praise. It’s a brilliant marriage of art and commerce, and that’s a lot. Unfortunately that’s not enough for some.

 

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Uncle Sugar's picture

How is the govt auctioning off so many bc's if they hate them. Shouldn't they run a magnet over the flash drive they're stored on instead?

http://www.usmarshals.gov/assets/2015/dpr-february-auction/

 

Self-enslavement's picture
Self-enslavement (not verified) Uncle Sugar Feb 19, 2015 10:08 PM

Bitcoin as fraudulent as the Euro.

NidStyles's picture

Gresham's Law applied to Bitcoin makes it clear that Bitcoin is the worst of the available options. Without even examining how weak it is without the internet.

dreadnaught's picture

n-n-n-nattering nabobs of n-n-n-nihilistic negativism!

Spigot's picture

In paragraphs 5 & 6 Mr Hunt attempts to distill BTC down to one of its many attributes. After this he then argues against BTC based on this inadequit reductum. He conveniently mentions the blockchain, but only in passing and without a discussion of the essentials of what a "trustless system" is really about ... it is a distributed system, not a thing. Transactions are publicly vetted and propogated. Unlike his analogous "letter of credit" there is no hidding ANY transactions when the blockchain is used to validate.

I do appreciate Hunt's historical awareness. I also see he hasn't quite "got it" as far as the en toto reality of BTC as a system. Maybe he will get it later.

zaphod's picture

Cash and gold work with exact same principles, the bearer has full ownership.

So why is this a problem for bitcoin but not gold. It is a feature of both systems, not a bug.

NidStyles's picture

Because bitcoin can not be validated without the internet, and that makes spoofing it that much easier without internet access. That means you don't really own it, but have simple rights to access and use of it with certain conditions being met... That means counterparty risk.

 

The security concerns alone, and how you transfer payment without getting scammed is more than enough to make any sane person stay away from it.

It's amazing how every year we have to cover this same idiotic conversation over and over again. Bitcoin hasn't changed, and the argument has not changed. Virtual currencies are just as dangerous as fiat currencies. It's not the fiat or virtual portion that is the problem, it's the CURRENCY portion that makes it an unsuitable means for the basis of a sound economy. It's not fungible, and thefore leads to immoral situation where the long time holders can benefit greater than the future earners despite the same holding.

 

Let's not even go into the simple fact that no one has a clue who is behind Bitcoin. I won't go into the Gresham's Law validation of it being the worst currency out there either. It stands that the USD is still better than Bitcoin, even with the nonsense going o with the dollar.

TheHound73's picture

Been happily using Bitcoin for 100% of my company's internal and external payments for 20 months.  Bitcoin hasn't changed, solid as ever.  For me, at least, bitcoin is a breeze to use and I couldn't imagine going back to 20th century style payments.  Fuck guv't issued scrip and fuck the banks.  

NidSter, how do you address Gold/Silver/Real Estate in regards to the "immoral situation where the long time holders can benefit greater than the future earners despite the same holding" ?  Evil hoarders the whole lot of 'em!

chumbawamba's picture

Bitcoin: Good for transferring your wealth, bad for storing it.

I am Chumbawamba.

shouldvekilledthem's picture

The data of the past 4 years begs to differ.

I don't blame you. Not many here can comprehend progress and have no insight of bitcoin's history nor willingness to learn.

gold-is-not-dead's picture

The internet will dissapear the same time the water pipelines dissapear.

NidStyles's picture

The internet will disappear when the Feds decide it's an inconvenience to their plans. Right now the amount of intelligence they can gather from it is far more valuable than the directed control of information that runs through it disrupting their plans/agenda.

 

It's ok if you kids can't understand strategic roles of infrastructure and warfare. It fine if you can barely understand economics. It's not fine that you are here assuming that I am attacking something and assuming that I don't understand bitcoin.

I was mining bitcoins before it broke above a dollar. I understand the technology and the reasoning behind it. I also understand that the technology is how they caught the owner of the Silk Road. "They" have acess to anything and everything that travels through these pipes.

 

They being the intelligence networks that work for the banks. If you think your transactions are secure, then you are more gullible than you think.

gold-is-not-dead's picture

oh boy, the mighty fed that controls the internet, get real and get some education.

gold-is-not-dead's picture

I'm not the kid, I used the internet when my government used the kill switch 15 years ago, there's no kill switch for the internet, there a re always protocols that work. Cables are in the ground already.

NidStyles's picture

They don't need a kill switch, they own the servers already chief. All telecomms go through the same six servers in the US. They own those servers, and just turn them off to shut down the public internet for good.

You won't be contacting anyone anywhere, because there will no way to send or receive across regional lines.

 

Even if you aren't a kid, you're knowledge level of the internet is that of a child. Your knowledge level of what the government is capable of doing when it's back is against the wall is even worse.

gold-is-not-dead's picture

They can't pull all the wires from the ground, yet alone interfere with the wifi globaly. They can keep all the servers, there's plenty of them. For instance, did you know that you dont need the IANA for internet TLD to work, there's namecoin now.

Prisoners_dilemna's picture

Where's fonestar to clear the air??

I see him comment over at coindesk.com.

I miss his pity and prescient comments; he was a true brawler at fight club.

gold-is-not-dead's picture

Had a word with him on gplus, he's still alive. :)

Bunga Bunga's picture

If you own the private key, you have the power over it's bitcoins, the rest is just math and it's implementation. Sure, there is counterparty risk to a certain degree, which is true for gold and cash as well, but it's negligible compared to bank deposits, certificates and other paper.

commander gruze?'s picture

Because bitcoin can not be validated without the internet, and that makes spoofing it that much easier without internet access.

Incorrect. Bitcoin can be validated without the internet just fine. It's the transaction broadcasting that gets difficult. Difficult but not impossible. Since a transaction is only around 350-400 bytes you can send it to someone who will relay it using analog radio or even morse code.

That means you don't really own it, but have simple rights to access and use of it with certain conditions being met... That means counterparty risk.

You make the mistake of believing that bitcoin is some kind of file or thing you have ownership rights on. It's not. It's an entry on accounting ledger. How can one own that? What you own is private keys needed to unlock the transaction referring to past entry in said ledger. It's called blockchain. It's an invention. Like calculus. Then the whole discussion about rights is beside the point. No one grants the right to fiddle with blockchain but the key holder - it's a peer-to-peer network and I don't need anyone's blessing to do whatever the hell I want with my UTXOs (unspent transaction outputs used as next transaction inputs).

The security concerns alone, and how you transfer payment without getting scammed is more than enough to make any sane person stay away from it.

Escrow? Multisignature escrow? Pooled multisignature escrow? Or, alternatively, escrow smart contract executed directly on the blockchain? Pick your choice. It all depends on how much are you willing to spend to secure your transaction.

It's not the fiat or virtual portion that is the problem, it's the CURRENCY portion that makes it an unsuitable means for the basis of a sound economy

Currency is an application of bitcoin's blockchain. The most basic one. Please care to tell me how notarization services available on blockchain are not suitable for sound economy. Or share issuance, or smart contracts for that matter.

It's not fungible, and thefore leads to immoral situation where the long time holders can benefit greater than the future earners despite the same holding.

You got that totally wrong. The above is true for proof-of-stake coins. Bitcoin uses proof-of-work algorithm. It actually hurts long term miners if they don't catch up with network difficulty target.

Let's not even go into the simple fact that no one has a clue who is behind Bitcoin.

Let's not even go into the simple fact that no one has a clue who Pitagoras was. Yeah, let's scrap trigonometry altogether. Or better, let's scrap the internet because it's DARPA's invention. See the idiocy of this statement? The creator of bitcoin has no more power over the network than the next person. It's distributed, not hierarchical, baby.

I won't go into the Gresham's Law validation of it being the worst currency out there either. It stands that the USD is still better than Bitcoin, even with the nonsense going o with the dollar.

It is until it isn't. Bitcoin is already more stable and transparent than half the shittiest currencies in this world. It's not going to overtake USD in this decade. Perhaps it never will. But it will help those living in places screwed up by inflation big time.

Morbid's picture

thank you for such a sound reply. we need better education in this segment as most people tend to come out with quick conclusions.

ebworthen's picture

NidStyles is correct.  Bitcoin is great because it uses math.  It is fatally flawed because it uses the Internet and Binary code.

The crypto-currencies reach a bubble in 1.5 years, then they are un-minable for all but the nearly insane.

And then, you can exchange cash that could be used for Gold or Silver for a "key" that is easily stolen.

Not to mention the exchanges are infected, raided, or shut down as often as a bad whore house.

TMLutas's picture

Bitcoin has a known issuance schedule. If sufficient miners drop out, the mining difficulty rating goes down. It's never happened. That doesn't mean it couldn't. If the number of miners drops sufficiently, the network becomes insecure because the cost to achieve a rogue dominating network of miners drops out of prohibitive range. 

inhibi's picture

The number of miners is equivalent to the difference between bitcoins worth and the energy (time & power) required to mine as well as the availability of minable bitcoins.

If energy costs go up, less people mine, because more miners are inefficent and as more and more bitcoins are mined, less and less exist, so the situation you describe will never happen. It wont happen because miners only stop when it becomes pointless to mine and it becomes pointless to mine when too much has been mined (or btc's r worthless).

Anyways, BTC are great for instantaneous transfers only, end of discussion. Only if the gov and banks would simultaneously switch to btc would it become a reserve currency.

btc's are absolutely nothing like bonds. They hold no indebtedness and pay no interest, and aren't tied to tangible assets. IMO, the price of btc's is equivalent to the volume of btc transactions with OTHER currencies. If the volume drops, then so does the price. There really are very few people nowadays that go and buy btc's to hold onto. The time for that has long passed.

 

 

mmanvil74's picture

Hunt gets one thing right, Bitcoin acts like Bearer Shares, but his conclusions from this observation are very short-sighted.  While I could argue all night (and have) about the functionality and value of Bitcoin, I'll cut to the chase on my disagreements with Mr. Hunt.  

1. What's wrong with Bearer Shares?  We still have them, they are called cash, but we carry less of them due to security risks, so we put all of that trust with a bank.  And what have the banks done with our trusted deposits?  Squandered them in a self-made casino apparatus that shoulders all of the losses and none of the gains on each and every depositor in the system.  If Bitcoin has a value, it's that it is NOT tied to this very system of entrusting our money with banks.  Sure you can put your trust in the FDIC, some of the rest of us would rather have our Bitcoins in bearer form, thanks, even if Butch and Sundance might find us and try to steal our Bitcoin - first they would have to know we have any Bitcoin, unlike a bank, we don't advertise.

2.  Bitcoin enables multi-sig, which means we can program our Bitcoins to require 2 of 3 or 5 of 7 or however many signatures we want to effectively move those Bitcoins.  This works like a trust.  Trusts require trusted 3rd parties like law firms.  All the world's wealthy use trusts today (Trusts have not disappeared like Bearer Shares).  Bitcoin let's you choose who you want to trust and they don't have to be hot shot lawyers who charge $500 per hour and thousands per year to renew, your trusted signatories can be whoever you want.  If you don't want to trust anyone but yourself, you can be the only one with the private key.  Alternatively, you can put your private keys in a safe deposit box so even you don't have the private key.  Or you can use a brain wallet and memorize the private key in your head.

3. If only the Bitcoin skeptics could just get over seeing the "price of Bitcoin in USD" they could finally understand the value of the "blockchain technology".  The price of Bitcoin is easily the part of the puzzle that throws most people for a loop because they instantly equate that to "value". Mr. Hunt alludes to the fact that the blockchain part of Bitcoin might be extra interesting, but completely glosses over the details while he discards Bitcoin as something between a fad and a trend.  Whether or not Bitcoin lasts as a currency matters not, the blockchain technology cannot be un-invented.  Blockchain technology can be used to replace entire segments of business, including accounting, legal, and financial.  Blockchain is to accounting, legal and financial what basic robotics was to auto manufacturing.    Even if Bitcoin fails, there are 500 other blockchains out there right now that ALL work, and value can move among and across any of them, relatively quickly, and without requiring permission from any gatekeeper.  Regardless of the "price of Bitcoin" the net wealth stored in crypto currency is going in only one direction.  The world was freer when Butch and Sundance roamed anyway.

Again, I could go on all night...

 

Haole's picture

A year ago this comments section would have been 5 pages long already, filled with utter stupidity, ignorance and vitriolic BS about what a joke BTC is.

Since then Bitcoin has proven all the clowns and lord knows how many calls for the death of Bitcoin on their face wrong.

Well, well... This article is crap and we haven't even hit a page yet. 

BTC, BTChez.

 

 

Exponere Mendaces's picture

ZH is the wrong forum for Bitcoin stories anyway. Everyone here seems too focused on the "tribe", "zion", and all the other bullshit for any real discussion. Just a bunch of ex-financial bigots busy expanding their underground bunkers.

Bitcoin will outlast ZH, so there is that at least.

 

TMLutas's picture

Once you have some bitcoins and/or some altcoins, once you have something spendable, people will spend it. I like the faucets for that. There's even a sort of multi-wallet / faucet combination that puts in a bit of coin every day called qoinpro. 

https://qoinpro.com/1a9c0b090819089035bd7fe1733b2bd7

I use mine for the occasional dogecoin that wanders my way. Even if you're a bitcoin critic, I don't understand why you wouldn't sign up for something like that. 

Pool Shark's picture

 

 

"Like gold, Bitcoin is neither a currency nor a store of value."

 

I stopped reading after this...

 

Mark of Zerro's picture

+1000 on this.  Any argument after this statement colors it glitter.

 

JuliaS's picture

I encounter the "gold-like" comparison, at virtually every bitcoin associated website I come across.

I'm yet to find a precious metal site that compares gold to bitcoin.

And it makes sense. When selling old crap on e-bay and craigslist, people often try inflating the value of merchandise by saying it's in a "like new" condition. No dealer sells a new car by comparing it to a well used clunker, nevermind an imaginary one.

TMLutas's picture

By the time a well established incumbent starts comparing itself to the upstart, it's already dead man walking with the upstart long ago already stealing mindshare and marketshare from the incumbent. 

Gold will survive but market participants would do well not to imitate dinosaurs who ignored upstarts. 

spooz's picture

More fraudulant.  At least fiat currencies have the reputation of a sovereign to stand behind them.  Bitcoin has...bits. The ultimate ponzi.

TheHound73's picture

Oh my god NO!  Supply and demand, buyers and sellers determining a price!  PONZI!!

Charming Anarchist's picture

If you see economies as nothing more than a game, there is no objective difference between trading "currencies" or bitcoins or WorldOfWarCraft credits. 

None of us can get into the minds of any body who trades currencies. 

 

<<More fraudulant.  At least fiat currencies have the reputation of a sovereign to stand behind them.  Bitcoin has...bits. The ultimate ponzi.>>

If you do not like Bitcoins, that is fine.  Do not play that computer game.  Nobody is losing if you do not have fun with it. 

spooz's picture

Sovereigns have resources (at least until they sell them all off to private interests...but which can be reclaimed, in that case).  Bitcoin has nothing but electrons, ie, zero collateral value.

Abaco's picture

Only for those that don't understand what a pnzi is.

Barry Freed's picture

First they sell you the bitcoins, then they run the magnet over your HD later.

commander gruze?'s picture

 

This is not how it works. You cannot just delete bitcoins. There is no bitcoins on your hard drive. Most zhers would be blown away had they glossed over some basic technical details of blockchain.

Cripkuwy's picture

Sure, try to explain that to a few billion people in Asia or Africa. It's like trying to explain electric current: "You can't see it, but I swear it's there. Most people would be blown away had they glossed over some basic technical details of electricity". See money, before it's used as money has to have value in the first place. Comparing BTC to gold because it can't be duplicated at will makes no sense whatsoever. How about the other 50+ cryptocurrencies? Are they also 'as good as gold' because they can't be duplicated? Spot any fallacies here? Furthermore if you can't explain it to a 6 year old, I wish you good luck trying to persuade people. Explaining to my grandmother how to send a simple sms was a real challenge. If you need an instruction manual for money, chances are people won't trust it.

commander gruze?'s picture

It's like trying to explain electric current: "You can't see it, but I swear it's there. Most people would be blown away had they glossed over some basic technical details of electricity"

Your point being what exactly? That it's not going to work because it's hard to grok?

See money, before it's used as money has to have value in the first place.

Precisely the way around. It has value because it's used as money and fulfils the characteristics money has to have. Feathers and shells were used as money not because they had value but because they were transactable. So was salt. And then gold. And then bitcoin when after being used for 9 months in 2009 it started to have value. Its value was an emergent property stemming from its utility.

Comparing BTC to gold because it can't be duplicated at will makes no sense whatsoever. How about the other 50+ cryptocurrencies?

Well over 1000+ at present, but it does not matter anyway. They lack Bitcoin's utility and transactability.

Are they also 'as good as gold' because they can't be duplicated?

Well, let me reverse that argument. Is, say, Indium as good as gold because it cannot be duplicated? Indium is used for different purpose than gold, so are altcoins. Most of them is going to die of starvation in transacted volume. Those which survive will serve different purpose - like Ethereum (powering the blockchain-based contract resolution platform) or Florincoin (used for blockchain-based persistent information storage). Yet others will be build on top of bitcoin blockchain (like Colorcoin, Counterparty or Mastercoin) to act as share certificates and tokens of non-monetary value (i.e. as transactable access control artifacts).

Furthermore if you can't explain it to a 6 year old, I wish you good luck trying to persuade people.

How do you even begin to explain the Internet to a 6 year old? Do you start with theoretical OSI model? Or do you just straight to TCP/IP. What about application level protocols? How is session maintained across different app level protocols? Are you trying to imply that thorough understanding of a technology is requisite in order to use it? Of course not. Bitcoin is very easy to grasp in practice. You show me a QR code of your bitcoin address, I scan it, type amount and hit Send. Two seconds later you hear a ka-ching on your mobile and 10 minutes later your newly transferred bitcoins become spendable.

Explaining to my grandmother how to send a simple sms was a real challenge.

It's ok. Not everyone has to use it. But those who hold some beliefs on it should at least give it a try. You can paste me your bitcoin address if you want to so you can play around. I'll be more than happy to send you some of this magic internet money.

If you need an instruction manual for money, chances are people won't trust it.

I would argue with that. If people see that 10, 15, or 20% of their money is lost in Western Union fees they will go the extra mile. It's a matter of balance - convenience of using known procedures with old money transmitter vs saving made at the expense of time and effort needed to learn new tricks.

Cripkuwy's picture

Feathers and shells were transactable, but more important they were rare at the time and so was salt for that matter. My point is different cryptocurrencies, just like other currencies, can be created at will. I agree that the blockchain as a technology offers endless possibilities. To me, BTC is an excellent conduit to transfer wealth, but certainly not to store wealth. People tend to forget that BTC only exists in the monetary plane, not in the physical plane...that's where the rubber meets the road. The fact that you need salesmen and an instruction manual to promote a monetary invention raises a few questions, that's all.

Sivad UK's picture

Pardon me if I am being ignorant, but if you delete the key to a wallet then have you not effectively deleted those bitcoins? How can they ever be recovered?

Since there are a finite number of BTC, in theory any government set on destroying it could simply print enough fiat to buy all of the coins and delete the keys. Those bitcoins would then be gone - no?

They wouldn't need to buy them all publicly, they could just start amassing them and disguise their actions by creating 10s of thousands of new wallets. It would look like the currency was taking off, then on day they'd all disappear.

Of course after that, they'd just go roundup all their fiat through relatively easily traced fiat transactions. Follow that up by taking down a few bad actors (black economy) and quite easy to demonize it to the masses.

 

 

commander gruze?'s picture

You're not ignorant. You are spot on re deleting keys, none the less the bitcoins (as annotated on the blockchain ledger) would still be there. Stuck forever. (This was partially the reason new operator, OP_RETURN, was introduced in Bitcoin script - to release lost, sometimes intentionally, bitcoins from expensive memory pool). They cannot be recovered. Another way to lost bitcoin is to send them to address that does not have private key. Still, they are not deleted in strict sense. They're just stuck in the network forever with no one ever being able to use them.

This is why you DO keep backup copy of a private key. I keep my keys encrypted with additional passphrase and spread in several locations - at home, in the office cabinet, at my folks' place.

Since there are a finite number of BTC, in theory any government set on destroying it could simply print enough fiat to buy all of the coins and delete the keys. Those bitcoins would then be gone - no?

They are finite upwards, but also infinitely divisible. Removing large pool of currency units would baloon the price of remaining ones. Then we would just move the decimal place like we did last year - most people don't transact in bitcoin, instead milibits are used (1/1000th of a bitcoin, like mimimeter is 1/1000 of a meter). Microbits are next in line.

But then they could unintentionally trigger strong market signal "all aboard bitcoin ship" and it would yield the opposite result making now miniscule bitcoin economy to explode. That wouldn't be the first time they completely failed to grasp unintended consequences of their actions.

Sivad UK's picture

You can only mine in units of 1BTC though right? Herein lies the theoretical problem...

You also have huge soverign risk. What if tomorrow the current powers have had enough and outlaw mining bitcoin due to environmental or some other created concern. Because you can trace it thru the bloc chain - wouldn't it be easy to locate the miners and shut them down? 

Look call me an old fashioned Gen Xer, but I've never gotten this. To function as a useable currency it relies on the internet and interconnectivity of processing power. That can be too easily shut down.

And then what is that bitcoin saved in a vault worth if there aren't enough computers solving the bloc chain for any potential trading partner to verify if you haven't already sold it 3 times that day?

I don't know. Too complicated. No internet or power and there is effectively no bitcoin (and I don''t mean the internet disappears a la Mad Max - I just mean the government clamps down and outlaws the computational work it takes to maintain its velocity)... 

commander gruze?'s picture

Bitcoin is not a solution for no internet no electricity scenario. I mean you could try and be successful calculating sha256 hashes pen and pencil way and broadcasting transactions via ham radio but it wouldn't be worth the effort. In a state of complete social decay that would inevitably ensue after power outage for few days you wouldn't probably acheive much more with precious metal anyway. After all food would be the most sought for good and - I imagine - it wouldn't have a price. Food would be the ultimate currency.

I wouldn't welcome living in such setting.

On the other hand, if you choose to travel north/south/east/west long enough you may reach a place where electricity and internet are on. And there your bitcoins would be worth something again.

You can only mine in units of 1BTC though right? Herein lies the theoretical problem...

Technically, all monetary units in Bitcoin blockchain are integers. Each individual unit is called "satoshi" and 100,000,000 satoshis form 1 bitcoin (100,000 satoshis = 1 milibit, 100 satoshis = 1 microbit). 50 bitcoins was the original reward for minig a block (the purpose of mining is not the reward, it's the compound computational confirmation provided to secure the transactions and make them historically immutable, reward is just an incentive), and it halves every ~4 years. Currently, we're on year 6 of bitcoin and the reward is 25 bitcoins (2,500,000,000 satoshis). Eventually, the blockchain reward is scheduled to decrease to 1 satoshi in year 2140 and miners will be mining entirely for transaction fees.

If necessesity arises, a change in protocol can be made to accomodate smaller denominations, but it's a lengthy process and changes in core protocol must be accepted by vast, vast majority of users (not just miners).

if there aren't enough computers solving the bloc chain for any potential trading partner

Network difficulty retargets every 2 weeks. If the average block time is less than 10 minutes, the difficulty goes up, otherwise it goes down proportionately. If 1/4 of entire global hashing power was to go off-line (say, we have 100 EMP events across whole Europe) the block time would go down from 10 minutes to 15 minutes, then the next retargeting date would be in about 3 weeks (worst case scenario), and then the network would retarget and return to normal 10 minutes/2 weeks operation reflecting actual hashing power of the impaired network.

Alternatively, you can always accept unconfirmed transactions. I do that for amount less than 100 eur in bitcoin.

Zorrohodge's picture

The thing is each coin can be divided down to 1 million fractions of a coin, (21 quadrillion bits) or 100 million fractions of a coin (2100 quadrillion satoshis) which is enough to be useable for transactions.  Destroying a bunch of bitcoins is the opposite of inflation and would make the remaining coins more valuable.  So that would be an own goal for governments.

Bitcoin evolves everytime something 'goes wrong', eg regulation, hacks, silk road seizures, auctions, unforseen limitations in the protocol etc.  Each of these challenges so far, (and there are more coming), change bitcoin but haven't killed it(so far).  

If one country eg the US decides to clamp down completely, it would have the opposite effect to what was desired, kind of like napster and the music industry. It would take a successful 100% global clampdown for it to be completely 'eradicated'. To continue this metaphor, anything less than complete eradication, and it can resurface in a different, stronger form, kind of like a bacteria that was only half treated with antibiotics.

mijev's picture

Selling them allows them to keep the price supressed. Wiping those wallets would have the opposite effect.