Recently I received an email from a reporter asking if I had a new email address for a certain person on my blogroll. I replied that I don't, and that (although he didn't mention why he was asking) I don't know if this blogger invented Bitcoin or not. And that if he did invent Bitcoin, it wouldn't make any sense for him to talk to me about it because my brain just gets very, very sleepy whenever anybody tries to explain Bitcoin to me.
In fact, I'm not really all that sure I could fully explain the logic behind why the corner liquor store lets me have a can of Diet Coke in return for a one dollar bill. So anything involving any kind of currency more abstract than bars of salt and rifle cartridges is over my head. Maria Teresa thalers are about my limit of comprehension.
Therefore, I don't have any opinion on Bitcoin.
In fact, I'm not really all that sure I could fully explain the logic behind why the corner liquor store lets me have a can of Diet Coke in return for a one dollar bill. So anything involving any kind of currency more abstract than bars of salt and rifle cartridges is over my head. Maria Teresa thalers are about my limit of comprehension.
Therefore, I don't have any opinion on Bitcoin.
Posts
69 comments:
That must be Nick Szabo, from the Unenumerated blog. He's been rumored to possibly be the Bitcoin founder for a while now.
"U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion"
The Onion 02.16.10
Money is a genuine, bona fide social construct. If people stopped thinking dollar bills were money, they wouldn't be money, just pretty pieces of paper. Compare and contrast "sex," "race," and "sanity."
Not sure you understand the purpose of a liquor store either. Diet Coke?
Anyhow you should probably figure it out before your next funding drive. I suspect some/a lot of your readers would be into this.
The world was on a gold coin standard. The United States became the reserve currency because it was literally as good as gold. When the US went off, so had the rest of the world, so there was no transition. It remained as a reserve currency. It also helps that OPEC only sells its oil in US dollars, thereby creating global demand for the currency. And when countries like Iraq, Libya, and Iran, entertain selling their oil exports for other currencies, they are met with economic sanctions for unrelated reasons. Couple that with Japan and China buying US debt in order to maintain their own trade surplus at the expense of the US also creates demand.
But the most important reason of all is taxes. Governments create demand for their respective fiat currencies by only accepting that "worthless paper" as payment, and will seize real property in the event of failure to pay what is owed.
Its why libertarians are wrong when they think legalizing gold and silver will undermine the fiat money system. Even in the likely event that capital gains tax on gold and silver is removed, people will just hoard precious metals and pay their bills and debt in fiat money. And thanks to legal tender laws, you cant refuse it even if you are the most zealous goldbug.
"Money is a genuine, bona fide social construct. If people stopped thinking dollar bills were money, they wouldn't be money, just pretty pieces of paper."
There would still be money though. The need for SOME medium of exchange is very strong. The choice of what exactly will serve as that medium is somewhat arbitrary. In other words, if money were outlawed, it would spontaneously reappear in other forms the way religion does in nominally atheist societies.
*I suspect some/a lot of your readers would be into this.*
This is true, but bitcoin is less anonymous than, say, putting a 20 dollar bill in an envelope and mailing it.
It's fine not to understand everything, but don't kid yourself that everything you don't understand isn't important. Sure, most fads don't pan out, but sheer dismissal is simply lazy ignorance.
Bitcoin is fascinating because it builds on decades of work in cryptography, and invigorates libertarians. It's built on the idea of a a trustless environment, as opposed to hoping regulators or bankers or central bankers act in the public interest.
50% tax rates and the appreciation of computer scientists are the key to its value. Those are the kind of people who are going to be worth a lot going forward, so having IOUs with them is worth something, even if other people don't get it.
Your opinion is too honest and sensible for the blogosphere.
"It's fine not to understand everything, but don't kid yourself that everything you don't understand isn't important."
I'm humble-bragging that anybody would suspect I might know who Satoshi Nakamoto really is.
I don't understand it either, but Lubos Motl takes a crack at it here (if you are looking for pure high-octane IQ he's the man):
http://motls.blogspot.com/2013/11/bitcoin-will-probably-keep-on.html
"I'm humble-bragging that anybody would suspect I might know who Satoshi Nakamoto really is."
But, I really, really don't understand anything about currency.
JJ:"The world was on a gold coin standard."
And, of course, shiny metals like gold are also lacking in real value. People just invest them with a completely illusory symbolic value.
Consult Mencius Moldbug on this. He is the only contemporary commentator I am aware of who knows what money is and can explain it to the interested. He has solved this problem
Eric Falkenstein:"Bitcoin is fascinating because it builds on decades of work in cryptography, and invigorates libertarians"
Anything that "invigorates" libertarians is either ridiculous or dangerous. Sometimes both.
"shiny metals like gold are also lacking in real value"
Your womenfolk like shiny jewelry that reflects light and draws attention. Striving to make females happy is about as much of an economic universal as there is.
Consult Mencius Moldbug on this. He is the only contemporary commentator I am aware of who knows what money is and can explain it to the interested. He has solved this problem
His predictions on economics and money have been way off though. He predicted a dollar collapse and massive gold price surge years ago that never materialized. He also predicted a Bitcoin collapse that never happened. Bitcoin rather spiked in value.
Steve:"Your womenfolk like shiny jewelry that reflects light and draws attention. Striving to make females happy is about as much of an economic universal as there is."
In which case, shouldn't gold currency take the form of jewelry, not coins?
"Your womenfolk like shiny jewelry that reflects light and draws attention."
Yes, I've called my wife on her corvine tendencies in this regard--and she's not even especially affected by glitter as women go. Dunno what that's all about.
Based on bitter experience, I'd suggest that one should not willingly invest in any scheme that one does not fully understand. The preinciple would seem as applicable to bitcoin as anything else. It's also worth noting that thinking one understands something is no guarantee that one really does.
"Your womenfolk like shiny jewelry that reflects light and draws attention. Striving to make females happy is about as much of an economic universal as there is."
Lot of people in the Middle East and Africa don't seem to be too worried if their womenfolk are happy.
OT, Steve you recently did a post about California Asian politicians opposing affirmative action for their universities. In it you mentioned Leland Yee. Is this the same guy who just got arrested by the FBI for trying to smuggle weapons?
http://dealbook.nytimes.com/2014/01/21/why-bitcoin-matters/
Marc Andreessen explained it in a way that makes sense.
http://forward.com/articles/195444/israel-abstains-from-un-resolution-slamming-russia/
The Russia-israel alliance is real after all:
Steve, your eyes will not glaze over if you read this piece by an economist:
http://nationalinterest.org/commentary/the-bitcoin-bubble-bad-hypothesis-8353?page=1
One thing that will keep me from holding any amount of Bitcoins is safety. I don't understand the algorithms and the transactions infrastructure, so I can't know that one fine day my account will disappear from a technical glitch or a hack. I also cant be sure that one day someone won't fund a way to mint a quadrillion Bitcoins thus causing the value of a Bitcoin to crash.
Now, I do online banking -- in Dollars -- and my life savings are also all in accounts accessible online. But the difference is that the infrastructure for that has been battle-tested and if someone did find a way to bring down the online piece of the US banking system, that would be a national emergency that would fully engage the Federal Reserve's efforts to sort things out...I hope, in a reasonable way.
"Lot of people in the Middle East and Africa don't seem to be too worried if their womenfolk are happy."
and how's that working out for them?
If told that Bitcoin enables Paypal and Western Union without fees, would you have any opinion of Bitcoin then?
as somebody who knows a decent amount about bitcoin, it is my opinion that people are safe not having an opinion about bitcoin. it's not a big enough of a deal for the average person to have to know about it. the average person will not encounter it much if at all, nor will they be forced to deal with an increasingly pervasive bitcoin presence, because it won't be increasingly pervasive like other new stuff introduced during the web era.
"sheer dismissal is simply lazy ignorance."
I dismiss it out of hand as I do most of the other theories put forward by irrationalists who believe in the "Singularity."
Gold or chickens or sow bellies or barrels of petroleum have intrinsic value as useful commodities in and of themselves. Bitcoins do not. They represent nothing more than the past dissipation of potential electrical energy. Their possible value disappears in the very act of their creation.
This lack of usefulness makes them worthless as a medium of exchange as they can never represent a store of real value. Much like the U.S. dollar which has lost something in the vicinity of 98% of its value (all depending upon your method of calculating price inflation) since 1914.
Your argument implies that a hole in the ground dug and then filled in by Isaac Newton would be more valuable than one dug and refilled by you or me. This is absurd on the face of it.
"shiny metals like gold are also lacking in real value"
Actually not. There is gold in every smart phone and consumer electronic device in use today (among other manufactured goods.) Its easy divisibility and ability to be accurately assayed also lends itself to being a medium of exchange.
The fact that Bitcoins are cheaper way of accounting for transactions than what the average commercial bank currently charges simply means that some banks are overcharging for this service and NOT that Bitcoins are some magical replacement for fiat money.
Privately issued banknotes have always been worth what they are based upon the trust one has in the integrity of the bank and the fact that the bank has issued the notes based on its ownership of real physical assets whether that be real property or commodities like gold, silver, copper, or nickel.
Bitcoins are nothing but examples of expended energy. They have expended any potential value (potential electrical energy) in their very creation. They are worth nothing.
Anonymous said...
And, of course, shiny metals like gold are also lacking in real value. People just invest them with a completely illusory symbolic value.
3/28/14, 5:09 PM
Not because its symbolic, but because of tradition. Metal coins have always been money from 700 BC all the way until the middle of the 20th century, when the ruling class up and decided to do away with the "barbarous relic." Well over 2000 years of established history. And yet now its become unthinkable of bringing it back. Given enough time and control over the opinion-forming organs of society, the ideological state apparatus's as Louis Althusser called them, one can simply dictate what is valued and what isnt.
I do agree with goldbugs though that gold is honest money. You cannot debase it as easily as the push of a button like central banks do today. They would have to first repo every coin in circulation and then physically dilute the gold content of each coin before reissuing them. Its been done repeatedly by kings throughout history, but always complicated, and intellectuals notice the aftereffects of mass inflation. Fiat money allows it be to done so slowly and insidiously that people can actually be convinced that its a good thing to have 2% (at minimum) of your cash holdings to simply evaporate every year for the benefit of the political and financial elites. It goes back to the ISA's again.
Steve, the holy grail of Bitcoin is cost-free payment processing.
Currently, you buy something online, or make payments of your taxes online, or anything, there is a processing fee. Mastercard and Visa take about 4%, Paypal about the same, and even plain old banks take around 2-3% if you pay your house taxes online with your bank account.
IF you could create the digital equivalent of coins or paper money, that are "transaction cost free" then you have the ability to set the standard. And of course, as a standard setter, extract monopoly rents on convenience of processing or storing or banking such online payment currencies.
Something like this is already happening in Africa. Africa has almost no real banking systems, most people in even urban areas let alone rural areas have no access to banking and payment systems. What has cropped up is a trading system based on mobile phone credits and swaps directly for say, mobile phone minutes for a chicken. Things like that.
A unit of monetary exchange is far more stimulative of economic activity because a standard unit of monetary measure is more efficient than bartering, which has all sorts of costs and uncertainties.
The whole point behind Bitcoin is to make payment on the web as much like payment in real life with cash as easy as possible.
Of course, this means like cash, it is theoretically untraceable and can be used for all sorts of things people use cash for. Tax evasion, the Black/Craigslist economy, criminal activity, etc.
Let me add, Gold exploded from the Kingdom of Lydia in 700 BC or so as a means of coins because it could be tested.
All you had to do was use a touchstone to determine how pure the gold was. Gold could be easily checked.
Silver, less so, and copper even less. But the value of the coins was a measure of how well they could be checked.
One thing that is fairly interesting is that gold coins were pretty rare in circulation. Most Roman coins were silver or copper or tin. Very few gold coins were ever issued.
jj:"Not because its symbolic, but because of tradition."
And tradition is just another way of saying that the symbol is old...
JJ:" Metal coins have always been money from 700 BC all the way until the middle of the 20th century,"
Well, since we have a 700 BC starting date, metal coins have not always been money...
JJ:" when the ruling class up and decided to do away with the "barbarous relic." Well over 2000 years of established history."
And monarchy goes back even further....
JJ:" And yet now its become unthinkable of bringing it back. Given enough time and control over the opinion-forming organs of society, the ideological state apparatus's as Louis Althusser called them, one can simply dictate what is valued and what isnt."
Yes, just as the ideological state apparatus convinced people that some shiny coins could be exchanged for something of real value, like, say, a cow...
JJ:"I do agree with goldbugs though that gold is honest money. You cannot debase it as easily as the push of a button like central banks do today. They would have to first repo every coin in circulation and then physically dilute the gold content of each coin before reissuing them. Its been done repeatedly by kings throughout history, but always complicated, and intellectuals notice the aftereffects of mass inflation."
A much simpler method is to flood the gold market. Since gold is a commodity, its value goes up and down according to scarcity....
JJ:" Fiat money"
And, of course, gold is also fiat money....unless you think that a pound of gold actually has inherent value...
"shiny metals like gold are also lacking in real value"
James Hedman:"Actually not. There is gold in every smart phone and consumer electronic device in use today (among other manufactured goods.)"
Yes, but gold is not valued strictly according to its utilitarian value. As with diamonds, its imaginary value takes precedence.
James Hedman:"Its easy divisibility and ability to be accurately assayed also lends itself to being a medium of exchange."
Sure. But people have to be willing to believe that this hunk of metal can be used as a medium of exchange. After all, if someone uses gold to buy a cow, the value of the gold is not calculated according to its utilitarian value
(as a component in electronics, etc). It's pure ideology in action.
Here's a thought experiment. Zombie apocalypse happens. Society falls apart. Would you rather have a million dollars in gold coins, or a big collection of working AK-47s and a cattle ranch?
Bitcoin is a promise to pay in Bitcoins, same as any other money is just a promise to pay. And like other money its actual value depends on the credibility of the promise.
On the other hand, a few years ago Lily Allen turned down what was then £200 of Bitcoin to do a podcast. And what she turned down is now exchangeable for 6 times her total worth.
Just to get this thread grounded, here are the opening paragraphs of Lubos Motl's comment on bitcoin:
"The bitcoin is a unit of wealth stored in the solution to a difficult mathematical problem that needs the brute force of computers to be found. So some computers are working to "mine" this new kind of gold. This gold, when found, may be transferred to others. You may sell actual products for bitcoins.
People who use the bitcoin payments often store the full blockchain – a multi-gigabyte public ledger that remembers all the transactions in the world (this will surely get highly impractical if the currency keeps on expanding). How many coins are there? How is their number evolving with time? What will the bitcoin-dollar exchange rate be doing?"
Continue reading if you wish to be further informed:
http://motls.blogspot.com/2013/11/bitcoin-will-probably-keep-on.html
(Too many commenters on this thread just like to bloviate.)
Silver was the main currency, not gold, for most of recorded history. The dollar is derived from a Spanish silver coin, and the pound sterling and french livre used to be about a pound of silver.
Gold, like the English guinea, was used for certain large transactions, but was demoninated and valued in silver.
The gold standard system did not last very long, and saw constant deflationary depressions.
I do agree with goldbugs though that gold is honest money. You cannot debase it as easily as the push of a button like central banks do today.
Honest and also reliable? Then why does the price of physical gold continually fluctuate? Debase gelt at the push of a button? Have you noticed that the price of gold ETF's such as GLD also continually fluctuate?
Gold Weaker, At 6-Week Low, As Bears Still In Technical Command
Comment Now Follow Comments
(Kitco News) - Gold prices are lower and hit a six-week low in early U.S. trading Friday, giving up modest gains seen in overnight dealings. There have been no major developments late this week to drive the gold market, and the technical traders are dominating price action. The charts are favoring the gold and silver bears at present. April gold was last down $6.50 at $1,288.50 an ounce. Spot gold was last quoted down $2.70 at $1,289.50. May Comex silver last traded down $0.018 at $19.69 an ounce. ...
http://www.forbes.com/sites/kitconews/2014/03/28/gold-weaker-at-6-week-low-as-bears-still-in-technical-command/
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The whole point behind Bitcoin is to make payment on the web as much like payment in real life with cash as easy as possible.
Bitcoin competes with new, smart phone-based payment schemes that charge lower fees than MastCard, Visa,et al. One might say that Bitcoin is another type of charge card.
Of course, this means like cash, it is theoretically untraceable and can be used for all sorts of things people use cash for. Tax evasion, the Black/Craigslist economy, criminal activity, etc.
I.e., money laundering. eBay and PayPal have been accused of allowing or enabling that.
>IF you could create the digital equivalent of coins or paper money, that are "transaction cost free" then you have the ability to set the standard. And of course, as a standard setter, extract monopoly rents on convenience of processing or storing or banking such online payment currencies.<
In other words, get customers on the grounds that there are no fees - and then charge the hell out of them.
Re: Satoshi Nakamoto. The really interesting question is who was the programmer behind it. Satoshi is Nick Szabo - that is pretty much a lock. However, unless Nick is a programming equivalent of Newton, Darwin and Einstein combined, he was helped by someone. The only interesting question is who was the guy who coded Bitcoin to be so secure. That guy is worth his weight in gold (no disrespect to Nick who made the whole thing happen; and sorry - there is almost not a chance that it was a gal.)
I don't dismiss digital currencies entirely, but they have had a rough start:
- Association with black market activities
- Illiquidity
- General price instability
- The "mining" concept produces terrible incentives
- Hacks and thefts
- Unreliable institutions: No safeguards like fraud protection, FDIC, etc. The fact that the main exchange was originally used to trade Magic the Gathering cards...
Most importantly, both a 9-year old and a 90-year old can use and understand paper currency. Bitcoin simply confuses the average person. Until someone finds a way to present digital currencies in a way that is extremely simple, reliable, and usable, they will be dismissed as too complicated.
Cost free payment processing? Like cash?
Everything has a cost. Even cash. You can rearrange the accounts all you want, ultimately you are "paying" somehow some way.
I've always looked to the ultimate reason for everything. Why do we use dollars? Because the IRS demands payment in dollars based on some arbitrary metric (i.e. the tax code), and if you don't give them the number of dollars they want, some guys with guns will come and put you in a small room where you will not be able to trade anymore. Originally, this was not seen as enough of an incentive, since not everyone would pay taxes, or would pay only for specific things (excise taxes). To enforce using dollars in those days, the dollar was tied to a given amount of gold set by Congress. When we went off the gold standard, income taxes were paid by essentially everyone, so the "guys with guns" incentive, along with simple custom (a very difficult thing to break in itself), could enforce use of the dollar by pretty much everyone with or without gold backing. But bitcoin has neither government "guys with guns" incentive, nor ties to physical metals like gold, nor custom in its favor. Building a custom is its only chance, and I'm not betting on it.
Why gold as money? Not for any intrinsic electronic properties, surely. It was useless, and pretty (no oxidization), and has traditionally been associated with people of high status or wealth (the beginnings of social stratification) from ~4600 BC in the Balkans (cf. Varna necropolis). It is too soft to use for any real application, so is most used for jewelry and status, popular especially with women. Having gold to give to women would make you more attractive to them, and thus give you a reproductive advantage. These latter statements are purely speculation on my part, but I think they make sense. The prime benefits of money seem to always be status and reproduction, so of course it would be tied to gold.
As an aside, I recall that in the original Communist propaganda book, Utopia by Thomas More, they do not use money, and instead use gold and silver to shackle their prisoners as they had no other real value as metals. Yet somehow, people find uses for gold as symbols of wealth/power/religion in many different cultures.
our pennies are 95% zinc ... so our currency is debased far more than the roman empire's
The scot irish were expelled from England for coin clipping
"Eric Falkenstein said...
Bitcoin is fascinating because it builds on decades of work in cryptography, and invigorates libertarians."
Libertarians mostly seem to be invigorated by childish nonsense.
"It's built on the idea of a a trustless environment, as opposed to hoping regulators or bankers or central bankers act in the public interest."
Without trust, there is no society. You cannot construct a society without trust.
"50% tax rates and the appreciation of computer scientists are the key to its value. Those are the kind of people who are going to be worth a lot going forward, so having IOUs with them is worth something, even if other people don't get it."
Computer scientists are not worth that much - no more than any other technical specialty - they are hirelings. Libertarian computer guys like to delude themselves that they are some kind of precious chosen-people. They aren't.
Steve has written at length about affinity-scams. Perhaps Bit-Coin is just an affinity scam for libertarians.
It's built on the idea of a a trustless environment,
all those people who trusted Mt. Gox want a word with you.
Consult Mencius Moldbug on this. He is the only contemporary commentator I am aware of who knows what money is and can explain it to the interested. He has solved this problem
He's somewhat of an idiot, although he does release great gaseous clouds of words into the blogsphere. It's one of the mysteries of the internet how people like this get a following.
It's refreshing to hear somebody say they don't understand Bitcoin. I've read a lot of explanations about it, and while I mostly understand the mechanism, I don't get how it's supposed to revolutionize anything. As a payment system, it's still very closely tied to USD. That the nominal value fluctuates so much means that not only do you have the overhead of a new payment system, you also get price instability for free!
"Lot of people in the Middle East and Africa don't seem to be too worried if their womenfolk are happy.
and how's that working out for them?"
What an idiotic, childish comment. It's working out for them just fine. Their societies are growing, expanding, and energetic. Yeah, they don't have the same level of creature comforts, but their populations are increasing, because they raise children who are eager, who are proud of who they are.
What about us? We DO care if our women are happy. And our women have record low birth rates, as our society circles the drain in a never-ending cycle of angst amd shame.
Here's you: "Haw-haw. Those Africans don't even have the newest iPhone!"
Like some clueless, illiterate teenager.
Here's you: "Haw-haw. Those Africans don't even have the newest iPhone!"
Like some clueless, illiterate teenager.
-------------------------
LOL. Thank you. We live in the froth, not the liquid.
Multiple posters:
Lot of people in the Middle East and Africa don't seem to be too worried if their womenfolk are happy.
Mostly because women are never collectively happy. It's an oversimiplification, but none the less true.
It's working out for them just fine. Their societies are growing, expanding, and energetic. Yeah, they don't have the same level of creature comforts
I'm not so sure. Very few Third World societies are starving, or don't have shoes for their children. Most of these people are happy the way they are, and don't have the Western chronic feeling of emptiness. For Western yuppies from the time of Calvin, being too comfortable, and/or focusing on creature comforts, is considered a sin. In "primitive" Southern and Eastern societies where status is inscribed rather than achieved, people don't waste energy in needless status-seeking and "keeping up with the Joneses."
but their populations are increasing, because they raise children who are eager, who are proud of who they are.
Increasing, or at least stabilizing at replacement rates.
What about us? We DO care if our women are happy. And our women have record low birth rates, as our society circles the drain in a never-ending cycle of angst amd shame.
Let me paraphrase. We DO care if our women are happy, and they spend their lives chasing impossible dreams, and have record-low birth rates, and are STILL unhappy. And at 65 they regret not having more kids.
Here's you: "Haw-haw. Those Africans don't even have the newest iPhone!"
Not the latest iPhone, but most of them do have access to iPhone or at least cell phones and other Western technologies. What they don't have is bullshit - like diamond-studded exercise bikes and mahogany grand pianos.
I think I understand money/currency fairly well. I can explain its functions and know a good bit about its historical development. I can recommend Murray Rothbard's "What Has Government Done To Our Money?" as a decent, easy-to-follow general introduction to the subject, even though I disagree completely with his (and libertarians' generally) view that fiat money is economically destructive. In this sense, bitcoins are easy enough to understand - they're just another form of money, with certain advantages (to people who consider such things important) and certain disadvantages (at least for now).
But I don't understand at all how bitcoins are "mined." Explanations I've read so far fail to satisfy me, much the same way that explanations of what the "weak force" in physics actually does fail to satisfy me. I can't seem to get any more comprehensible detail beyond the very basics - bitcoiners explain that bitcoins are "mined" and physicists tell me the weak force "controls radioactivity" but immediately beyond this they descend into a kind of gobbledygook I can't make head or tail of. This just can't compare to the immediate clarity of what a paper bill is and what the force of gravity actually does.
I've been interested heavily in Bitcoin for the past 4 months or so and I even own some.
The biggest thing you as a blogger should know, is that you can accept donations in Bitcoin without understanding it at all. Coinbase.com would be more than happy to set up an account with you and then turn all Bitcoins into dollars for a 1% fee.
This is good for everyone, since I can give an anonymous donation to someone that I wouldn't want my name attached to. Sorry Steve, I love your writing but there are obvious reasons why I wouldn't want my name attached to the HBD sphere.
Other than that, the recent IRS ruling that Bitcoin is a property and not a currency has made me really depressed about its future.
The only way Bitcoin could ever take off and be stable is if a cycle was created going from Employer --> Employee --> Business --> Employee. But doing all of the taxes for that has suddenly become an insane nightmare because of the IRS. Basically if you get paid in Bitcoin and then you buy something in Bitcoin and the value has gone up 10%, you now have to pay capital gains tax on that 10% value of the amount that you spent.
But this is to be expected. The government can't pay its debts without inflation and the banks would be irrelevant for transferring and holding money if Bitcoin took off.
I am Spartacus.
Bitcoins will always be too complicated because they rely on complex technology for their very existence. A chicken is a chicken.
Mankind denominated chickens in gold for carrying convenience. Then it started exchanging checks on stores of gold. That's where the mischief started.
The next step away from the world of actual physical wealth and toward that of mere wind is to do for paper money what paper money did for gold. At least you can light a fire with Confederate dollars. You can't even bite a bit coin.
Paper money is crooked enough. I am against disembodying currency any further. (Yes, money mostly circulates electronically these days, but ours is still in dollars, which not only burn but also - theoretically speaking - are claims on a certain weight of gold; a dollar is a unit of gold weight.)
Someone mentioned coin-clipping. Seems to me that was the original "bit" (of) coin.
As for gold being honest money, consider this:
Investigation of Alleged Price-Fixing and Benchmark Rigging in Gold Market Announced by Lieff Cabraser
Business Wire Lieff Cabraser Heimann & Bernstein, LLP
March 14, 2014 9:00 AM
SAN FRANCISCO--(BUSINESS WIRE)--
The national plaintiffs’ law firm Lieff Cabraser Heimann & Bernstein, LLP announces an investigation of alleged price manipulation in the gold market and a widely-used benchmark, commonly known as the “London Fix”. If from 2004 to the present you purchased or sold physical gold, or invested in gold derivatives that settled or marked-to-market based on the London Fix, or purchased or sold gold derivatives on COMEX, including futures and options, you were likely harmed by manipulation of the market price of gold. In that case you may seek recovery of your losses.
Gold investors who wish to learn more about the action should click here or contact Bruce Leppla of Lieff Cabraser toll-free at 1 800-783-0709.
Background on the Gold Fix Investigation
Financial benchmarks have been under heightened scrutiny in the wake of the LIBOR scandal. Among those is the London Gold Fix, a benchmark gold price set by five banks in London. On February 28, 2014, Bloomberg News reported that the same academics who uncovered the LIBOR manipulation had investigated the gold fixing process and found empirical evidence consistent with manipulation (the study is currently unpublished). Bloomberg reports that the gold market is worth $20 trillion annually.
Twice a day in London, traders from Barclays, Deutsche Bank, Bank of Nova Scotia, HSBC, and Société Générale have a conference call to set the Gold Fix.
The call begins with the current spot price of gold, and it is adjusted up or down based on the banks’ bid/ask order book requests. The price is “fixed” when buy orders match sell orders (within 50 quantity units). Bankers buy and sell gold based on clients’ orders and also from their own books. Bankers and their clients may adjust their orders during the fixing. The call is hosted by a chairman, which rotates among the member banks. Société Générale currently chairs the call. ...
http://finance.yahoo.com/news/investigation-alleged-price-fixing-benchmark-130000054.html;_ylt=AwrBEiH15DZT6TkAUayTmYlQ
Is this a Yahoo news story or a Yahoo paid advertorial? I can't tell which. Yahoo --> an internet firm on the way down and out.
Seems to me that Bitcoin might also be vulnerable to a price-fixing conspiracy. The current value of Bitcoin digital coins is set by the current price of Bitcoin stock shares, isn't it?
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Furthermore:
http://www.foxbusiness.com/investing/2013/07/02/winklevoss-twins-look-to-launch-bitcoin-ipo/
Cameron and Tyler Winklevoss said in the filing that the objective of the trust is for the shares to “reflect the performance of the blended Bitcoin price, less the trust’s expenses.”
The trust would operate like an exchange-traded fund and each share would be worth a fraction of a Bitcoin.
In other words, the value of Bitcoins flututates every stock market trading day. A Bitcoin is worth a fraction or, better, a multiple of the current price of a Bitcoin E.T.F. share.
...
The virtual currency has also seen enormous amounts of volatility that would seemingly trigger huge price fluctuations under the proposed IPO. For example, Bitcoin started the year valued at just $20, but then spiked beyond $260 in April, only to tumble below $40 months later.
“Investing in Bitcoin has been a whiteknuckle ride so far, and nothing in its near future points to a different trajectory,” Nicholas Colas, chief market strategist at ConvergEx, wrote in a recent note.
From a regulatory perspective, the Winklevoss twins said they believe Bitcoin should be treated as a commodity, a view shared by some experts, although the U.S. government has yet to address the matter. ...
"Treated as a commodity" -- hence the "Bitcoin mining" trope. It's mined, see, just like gold and silver.
Bitcoin is fascinating because it builds on decades of work in cryptography, and invigorates libertarians. It's built on the idea of a a trustless environment, as opposed to hoping regulators or bankers or central bankers act in the public interest.
Compare to:
Bitcoin has been a subject of scrutiny amid concerns that it can be used for illegal activities.[9][10] In October 2013 the U.S. FBI shut down the Silk Road online black market and seized 144,000 bitcoins worth US$28.5 million at the time.[11] The U.S. is considered Bitcoin-friendly compared to other governments.[12] In China new rules restrict bitcoin exchange for local currency.[13] The European Banking Authority has warned that Bitcoin lacks consumer protections.[14] Bitcoins can be stolen and chargebacks are impossible.[15] In 2014 the US IRS ruled that the bitcoin should be treated as property rather than currency.
http://en.wikipedia.org/wiki/Bitcoin
Bitcoins can be stolen? Aren't Bitcoins built on decades of work in cryptography?
"This is good for everyone, since I can give an anonymous donation to someone that I wouldn't want my name attached to."
As someone said above, you can anonymously donate paper money by putting it in an envelope and mailing it. Bitcoin's anonymity is most advantageous to the payee.
David,
Dollars haven't been backed by gold for decades; they represent no "theoretical" claim on gold.
Some people have trouble understanding that money doesn't need to be "real" in order to function as money. Fundamentally, money is an idea. Given a unit of account (eg dollars, or Monopoly money, or rice grains, or whatever), if human beings had perfect memories and were perfectly honest such that each person knew how much money he owed and how much he was owed and nobody ever lied we could simply make "payments" to one another by word of mouth. No physical exchange of tokens would need to take place. As far as we were concerned, such tokens need not exist and need never have existed. Our money would simply be our memory of numbers owed and numbers owned.
Humans obviously have no such abilities and everybody would certainly lie but the point is if humans were capable of behaving in that manner then there would be no need for physical money - not even as numbers on a bank's database. (Well, our memories could be classed as "physical," so perhaps I should say no need for "external" money.) Physical/external money simply makes it possible for us to accurately maintain our accounts and keeps us honest.
3/29/14, 5:49 AM Anonymous said...
" And tradition is just another way of saying that the symbol is old..."
Yeah, no.
Symbol-something that stands for or suggests something else by reason of relationship, association, convention, or accidental resemblance; especially: a visible sign of something invisible
Tradition-a way of thinking, behaving, or doing something that has been used by the people in a particular group, family, society, etc., for a long time
I dont see why you feel compelled to stretch your symbol argument rather than just admit the oversight. People first adopted coins because it was better currency than food. Nothing better came along over the millennia, and people had to be forced to make the transition to paper money through gold confiscation and threat of imprisonment.
"Well, since we have a 700 BC starting date, metal coins have not always been money..."
Of course. But we are talking about civilizations that have evolved from primitive hunter-gatherer societies, and are at least pastoral in nature, if not industrial.
"And monarchy goes back even further...."
Your point? Monarchy can easily be argued to be superior to universal suffrage democracy. The diffusion of responsibility alone makes it untenable for long-term stability, with political factions blaming each other for every failure. A sword of Damocles was essential in keeping the ruling class honest, a threat which has unfortunately been completely removed.
"Yes, just as the ideological state apparatus convinced people that some shiny coins could be exchanged for something of real value, like, say, a cow..."
Actually no. People made the transition all on their own. Kings were late to make the change to collecting taxes in coins and were still taking food, seashells, and whatnot. However, the revenue lost out was regained and then some by nationalizing gold mints.
"A much simpler method is to flood the gold market. Since gold is a commodity, its value goes up and down according to scarcity...."
Of course. But as with any commodity, the available supply is limited by rates of annual production and industrial consumption. More importantly, the capacity for gold stocks to grow is a feature, not a flaw. When demand for gold exceeds supply, jewelry and even dental fillings can be melted down. Computers and electronics can be scrapped and salvaged, all growing the total gold stock as needed. The non-monetary demand for gold gives it value as money, but it is not permanently consumed as with food and other commodities.
"And, of course, gold is also fiat money....unless you think that a pound of gold actually has inherent value..."
There is no such thing as inherent value. The only metric to valuate the price of any good is what another person will give you for it. Gold will always have value for that reason. Or at least until matter duplicators become a reality.
David,
Dollars haven't been backed by gold for decades; they represent no "theoretical" claim on gold.
Are you talking to me?
If so, I have made no assertion that dollars have any theoretical claim on gold.
Some people have trouble understanding that money doesn't need to be "real" in order to function as money. ...
If you're talking to me and trying to make a good impression, then spare me that pseudo-sophisticated lecture.
Thank you.
[Dollars] represent no "theoretical" claim on gold.
What are you trying to say there, anyway?
"Here's a thought experiment. Zombie apocalypse happens. Society falls apart. Would you rather have a million dollars in gold coins, or a big collection of working AK-47s and a cattle ranch?"
Those AK's wouldn't be worth much without a well trained rifle company that knows how to run them.
However, barring total collapse, a private bank with ownership in a well stocked warehouse of AK's and other industrial commodities like engines and pumps, physical commodities like silver, copper, and producing oil wells, and also ownership in various real properties such as cattle ranches, office buildings, and apartment houses in good neighborhoods would certainly inspire my confidence in any banknotes they might issue. More confidence than I have in the rapidly deflating Federal Reserve Notes I have in my wallet or any long-term US treasuries that I don't currently own (but I am considering going short position on them.)
Davenport, I was responding to a post by David (not David Davenport) at 4:35pm. I think my response speaks for itself.
>There is no such thing as inherent value.<
It's hard to adopt a subjectivist attitude toward food and shelter, though. Their inherent value has a strong pressure on prices. Same holds true decreasingly for goods of increasing marginal utility.
Wikipwedia has a pretty good entry on Bitcoins:
Mining[edit]
Maintaining the block chain is called "mining," and those who do so are rewarded with newly created bitcoins and transaction fee. Miners process payments by verifying each transaction as valid and adding it to the block chain.[21] As of 2014 payment processing is rewarded with 25 newly created bitcoins per block. To claim the reward, the miner includes in the block a special transaction called the "coinbase" that assigns the rewarded bitcoins to an address of the miner's choosing. All bitcoins in circulation can be traced back to such coinbase transactions. The Bitcoin protocol specifies that the block reward will be halved to 12.5 bitcoins in 2017 and again approximately every four years thereafter. By 2140 there will be 21 million bitcoins, and transaction processing will only be rewarded by the transaction fees.[22] Users that pay a fee may have their transactions processed more quickly.[23] The most efficient mining hardware makes use of custom designed application-specific integrated circuits, which are much faster mining and have low power consumption compared to general purpose microprocessors, such as x86 processors.[24]
Bitcoin miners --> Obamacare "navigators" + multilevel marketers ?
...
Buying and selling bitcoins[edit]
Bitcoins can be bought and sold for many different currencies from individuals and from companies. The fastest way to obtain bitcoins is to purchase them in person or at a Bitcoin ATM for cash.[27] Bitcoin ATMs allow bitcoins to be purchased for cash,[28] and some also allow cash withdrawals from Bitcoin wallets stored on smartphones.[29][30] Participants in online exchanges offer bitcoin buy and sell bids. Companies buy or sell bitcoin in bulk on exchanges and offer their customers the option via ATM to buy or sell bitcoin at market price.[31] Using an online exchange to obtain bitcoins entails some risk, since according to one study 45% of exchanges have failed and taken client bitcoins with them.[32] Since bitcoin transactions are irreversible, sellers of bitcoins must take extra measures to ensure they have received traditional funds from the buyer.Bitcoin payment processing fees are optional, and generally substantially lower than those of credit cards or money transfers.[33]
So there's Bitcoins and there's cash and traditional funds, and all are not the same thing.
"Money is a genuine, bona fide social construct. If people stopped thinking dollar bills were money, they wouldn't be money, just pretty pieces of paper."
But there would still be money, it would just be something else.
As long as the NSA, or any other governmental agency devoted to breaking codes, exists, no Bitcoins for me, thanks.
Thank you for, when realizing you know little about Bitcoin, choosing to decline to opine upon it, unlike many other writers who charge forward regardless.
Or... What if you're Satoshi Nakamoto?
"The Real Reason the U.S. Dollar Has Value"
http://dailyreckoning.com/the-real-reason-the-u-s-dollar-has-value/
"I was at a conference when I took out a dollar bill and waved it in front of the audience. I asked, “Why does this piece of paper have value?” It’s interesting the range of answers I got.
One person said “gold,” which has nothing to do with it. There was a time when you could demand a fixed weight in gold in exchange for a dollar, but those days are gone. Another said, “You can buy things with it” — an answer that only begs the question why that it so. “Faith,” said yet a third. Not quite.
The answer is one that (some) economists have known about for a long time. I’ll tell you about it below along with three other counterintuitive and seemingly bizarre conclusions about the twisted world of modern money. I don’t think you would draw it up this way if you had the chance — but it’s the way the system works.
Government debt… is a form of savings for the private sector.
Tax liabilities give otherwise worthless paper value. The U.S. dollar has value because the government levies $3 trillion in tax liabilities annually and accepts only U.S. dollars in payment — which only it issues. And there is the credible threat of penalties if you don’t settle up with dollars. In so doing, the government turns all of us into dollar chasers. It’s how a state, any state, can turn worthless pieces of paper into valued currency.
“The modern state can make anything it chooses generally acceptable as money,” economist Abba Lerner wrote in 1947. “If the state is willing to accept the proposed money in the payment of taxes and other obligations to itself, the trick is done.” Brilliantly devious, isn’t it?
A dollar is, essentially, a tax credit."
Steve, good call not wasting any cycles on Bitcoin.
Three questions suffice:
-- Is it something of useful value (oil, grain, alcohol, shotgun shells, salt blocks, etc.)?
-- Do the bitcoin guys have guns?
-- Can you pay your taxes with it?
That pretty much settles the issue.
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