I though I would share this with you all since it makes for some interesting discussion.
For those of you who are unfamiliar with Bitcoin, take a moment to read the article do some googling to learn more about it.
I’ve looked into it and have concluded that, as a currency, it is functionally equivelent to the direct exchange of specie for goods and services. The only potential flaws in the system that I can determine is the strength of the encryption algo that is used to secure each “coin” and subsquent transactions. But that’s not a really problem if one considers that if the algo becomes unsecure in the future, people can simply switch to a new currency that is based on an even stronger method of encryption.
The current algo it uses is considered secure by the NSA and is not currently in any danger of being able to be cracked.
There’s no other real down sides and lots of potential upsides. Currently a coin is trading at over 10 USD. The coin market appears to be somewhat volitile in that it has recently surged in USD prices, but I think that is simply because more people are becoming aware of it. It has been in operation for a few years now, but it has only recently become popularized.
I haven’t seen any articles on this by the Mises Institute, so I figured I’d post this here and hopefully encourage some economist to do more work on it.
If there are BTC dealers who will loan BTC, I’m more than happy to take out a BTC loan at $10/BTC to be repaid in BTC. BTC is obviously in a bubble, it was under a dollar just a few months back.
I’ll make an analogy to BTC to hopefully explain the problem with it. Imagine a “guerilla paper currency network” consisting of thousands of printing presses distributed around printing an un-counterfeitable “currency.” Also, the currency includes some natural element that is costly but useless so only so much of it can be printed up over time.
The question is this: Would people switch to using the guerilla paper currency over their legal, fiat currency? Perhaps, in a free market in currency, some would try it. However, we do not have a free market in currency. It will not be difficult for the government to impose a tax on BTC or prosecute the use of BTC as “unlicensed money transmission”. The anonymity of the transactions is only technical… if I order a book from AmazonBTC.com, I have to send them my home address to where the book is to be shipped… there is no such thing as anonymity in the sense that programming nerds think of it.
So, if BTC ever does begin to represent any kind of competitive challenge to established, fiat currencies, it will be shut down and in short order. All the crypto algorithms and exchange protocols in the world won’t save BTC. It will either die in obscurity or it will be killed by the dollar establishment. Mark my words.
Anybody willing to loan me some BTC (I’ll pay 20% APR, way above market rates!!!)???
I hope the Bit-Coin movement gains steam and becomes a legitimate competitor to the horrible US Dollar. I prefer to be able to touch my money. That leaves precious and semi precious metals as the only real contenders for a currency. It is a lot easier to create Bit-Coins just like it is easier to create US Federal Reserve Notes than procuring, mining and minting real coins. So my preference is for reality. But I really hope the Bit-Coin works and takes down the dollar. Then precious metals will have a place and hopefully the Bit-Coin as well.
I don’t think the government is capable of shutting it down.
The most they could do is declare transacting in it to be illegal, but since (with proper precautions), transacting in it can’t be traced, making it illegal would simply be an excersize in futility.
Further, the government would have to justify why it should be illegal while trade in foreign currencies and digital tokens like “facebook credits” should not be. The courts would basically have to declare barter to be illegal. Obviously this is problematic for the government no matter how they try to go about doing it.
As for your analogies to its creation and operation, it is far more akin to people digging up gold nuggets and transacting with them than a bunch of people running around with printing presses.
But you’re uderestimating the power of intimidation. Sure, the government declaring the download of copyrighted materials to be illegal is absolute futility. But if you have internet access at work, your employer will likely have blocked BitTorrent and any other peer-to-peer filesharing system. This has nothing to do with Internet security and everything to do with legal CYA. Your employer isn’t going to risk prosecution by the Federal government as a result of your behavior. Doesn’t matter that the government can’t stop you from downloading once you get home.
Do you think any major corporation is going to deal in a currency declared illegal by the US government? Hell no. BTC has no future. If there’s a way to short it, I would love to do it because I like having more money.
LOL. What really cracks me up is the hubris of these guys in thinking they can create a fiat money without the prerequisite for fiat money: government force. The “we represent competition to fiat money on its own terms” argument is novel but not persuasive because Bitcoin can be shut down with the stroke of a pen and it will be if it begins to have any sort of success, unless it is already blessed by those who Dwell on High, i.e. the Establishment, which I doubt.
There can never be too many Hoppe lectures in the world:
Im calling BS on bitcoin. Its a classic bubble Price of it fueled up by speculative bidding, has little practical use. Yeah what, i can buy some small time web hoster and hippie microbrewer products? Big fuckin deal. Its useless, and the sooner the dumbasses stop wasting their gpu cycles on calculating these worthless nerd algorithms to make stupid bitcoins, the better for them.
Because new currencies are automatically accepted as payment everywhere.
By the way, try exchanging some silver coins for merchandize next time you head over to Amazon for some books. At current prices, Bitcoins have around a 90 million dollar market capitalization. That is a lot of ching. You don’t think retailers are gonna wanna part of that action?
So far I’ve seen some pretty weak arguments against the economic efficacy of bitcoins.
The arguements amount to:
It’s not gold or a hard commodity, therefore it must be bad. (eventhough it takes massive resources to produce a coin).
Government can shut it down (as if it can’t do that for gold or silver).
It’s a pump and dump scam, with absolutely no proof or anyone that you can point your finger at who might benefit. (I agree it is probably in a bubble, that doesn’t invalidate the economics of the currency system)
Great arguments.
I expected better from this place. Hopefully someone that could actually give me a run for my money. I guess not.
Man, why knock counter currencies? I mean, a currency has to start somewhere and as Suede points out a new currency will not be accepted by everyone and may never be accepted by everyone. That could even be a desirable situation in a world where currencies are allowed to compete freely.
Like any fiat currency, it has no non-monetary value. This means that it could not possibly become money through purely catallactic (voluntary exchange) means. That does not preclude the possibility of a government or government-like organization (say, the IMF or BIS) seizing on the idea and issuing their own digital fiat currency. However, sans government force, fiat money is impossible in any form, paper, tin, digital, you-name-it.
Actually, despite over a century of determined efforts to this end, governments have been unable to eradicate the use of gold and silver for their non-industrial use: insuring against fiat monetary collapse, that is, acting as a shadow-money. But even if the government had succeeded in eradicating the use of gold and silver for non-industrial uses, you’ve granted my point that the government could shut down BTC.
Pump & dump was hyperbole - I just mean that it’s in a bubble. If I could find someone willing to loan BTC for shorting purposes, I would gladly short it. I wouldn’t mind 10x earnings on the little bit of spare cash I have.
That might actually be one of the best points I’ve heard made on this subject. The Feds were able to confiscate gold in a time when prohibition of alcohol required a Constitutional amendment. How much would it really take to declare “we need to protect the integrity of the dollar. Transacting in non-legal tender is like stealing from Americans everywhere”…or any of the similar arguments made for confiscating gold back in the 30s.
How hard would it really be to make transacting in bitcoins illegal? It would be easier and less controversial than sneaking into a foreign sovereign nation and assassinating someone.
And then, yes, it would be difficult to stop people from trading them between themselves…but who the hell is going to continue to use a currency that you can’t transact in with any reputable business?
Bitcoin is not a fiat currency. Fiat means “by decree” and has value only because of government regulation or law. Bitcoin has value in the same way a Windows Operating System has value. It has all the inherent utility of gold and serves the exact same functions as gold in a monetary capacity, only unlike gold, it can do it over a wire without having to be represented by proxy.
Government’s have been trying to irradicate bittorrents and have tried repeatedly to shut them down. However, I can still go to innumerable sites and download movies using bittorrents. Bittorrents are impossible for governments to shut down. Likewise, bitcoins are impossible to shut down short of pulling the plug on the entire web.
As for the comments that no reputable business would do business in Bitcoins if the US government declared it illegal - I would argue that perhaps no US BUSINESSES would do business in bitcoin, but since Bitcoin is a global market created currency, any country that is not under US jurisdiction would be free to pursue transactions in Bitcoin.
I could simply order from an Iranian or Somalian company over the net.
Microsoft Windows can be used for something. It runs other software on hardware.
Gold can be used for something. It has physical characteristics suitable as a producer good.
Gold was that good selected on the market for it’s characteristics as medium of exchange (cut it in two and it still has the same value, a high value per mass, doesn’t deteriorate, identifiable, etc).
Bitcoins on the other hand have no production or consumption utility. They can be traded, sure. But what is being traded? Is it a valuable good? No. Is it a money substitute (a promise to deliver a good)? No.
These proclammations that “Bitcoins are as good if not better than gold!” is perfectly sufficient to explain what is going on with the bitcoin bubble. There are thousands of people who get suckered into this and believe that because in the past there was a price paid for them (including by themselves) that in the future a good price will be paid for them.
The people who paid a low price and sell for a high price are winners. But to keep this line of winners going there needs to be an ever greater line of buyers, which is the reason why people such as yourself are so adamant about it’s ‘value’. Because once sanity starts to sink in, the prices paid for bitcoins will crash and the holders of bitcoins at that time will be the losers.
People are always going to have a voracious appetite for tulips; house prices could never fall across the country simultaneously; BitCoins will have value in the future by virtue of exchange demand.
So far I still haven’t seen a single person present an argument that refutes the economic efficacy of bitcoins as a currency.
It’s the same thing being repeated over again - bitcoins aren’t gold, therefore they are bad.
Well no kidding they aren’t gold. But they serve the exact same economic functions as gold.
They ARE a market currency. Bitcoins have value because the market says they have value. No government is running around demanding that people buy bitcoins or transact in them. They act exactly like gold in terms of the economics of the monetary system.
I’m still waiting for someone to give me an argument other than “bitcoins aren’t gold, therefore they are bad”. That is not an economic argument. That is a religious belief.
