Lets say we have some BTC’s in circulation. LEts say we also have a competing digital currency called ByteCoins. Lets say the attributes of the two are nearly identicle. For what reason would I chose BTC’s over ByteCoins?
Lets take it one step further. Lets say we have a 3rd digital competing c urrency. It has all the attributes of the first two but it’s backed by a global ETF Security fund.
Why would I choose BTC’s or ByteCoins over the 3rd option?
@ The proponents of Bitcoin
As far as I understand it there are following problems with Bitcoin:
Yes if everyone accepted it, it could work as the new money. But that never was the point. The point always was how to you reach that point.
I think the current fundamentals are perfect for Bitcoin. We have a fiat money system mandated by decree, and this system is getting more and more cracks in it. At the same time several other private money attempts which were based on commodities have been already suppressed successfully. So this new system promises more much more. It is decentralized and anonymous it is claimed and cannot be shut down because there is no central middleman.
So let’s assume Bitcoin grows because of the mentioned reasons. Now buisnesses start to deliver goods in big amounts to their customers, although they only receive a few bits and bytes in return. They are delivering goods to specific persons, to their customers. This way it is easy for the government to find out who uses Bitcoins. Anonymity is gone. Also do you honestly think companies can do a noteworthy amount of business based on Bitcoin without the IRS noticing it? Why you think NLS did emphasize so heavily that he didn’t make a profit with Bitcoin yet? Don’t you think they are charged with tax evasion and threated with jail? Businesses and their customers? So there is no real anonymity as long as you know who received the goods!
Also decentralization only makes it harder for the government to shut it down completely, but it does not keep them from doing the same thing with it as with the Liberty Dollar: Call it a “unique form of domestic terrorism” and put its users into jail. Game over for Bitcoin.
So the only situation left for Bitcoin to thrive would be one, where the government stays out of the money business and let the market work. But this begs the question of what does it help to be decentralized and "anonymous“ in such a scenario? Then there is no specific advantage over any other free market money. It is even the other way around commodity backed moneys have an advantage:
So I think the strength of Bitcoin lies in the fact that it does not play a major part in the economy yet, that it is a small circle of people using it. This way you can avoid government entities, but only as long as Bitcoin doesn’t grow too big generating too much attention. Then you should better get out fast and don’t leave a trace.
Excellent post.
It does indeed beg the question of the relevency of a BTC type of currency in the absence of state legal tender laws.
They are delivering goods to specific persons, to their customers. This way it is easy for the government to find out who uses Bitcoins.
In western world, services market is bigger than “goods” market. Quite a lot of services can be delivered electronically and securely (coding, design, even medical services). Think of this as Bittorrent of services. Sure, the government can outlaw encryption, or even Internet, but I seriously doubt it will happen.
Also do you honestly think companies can do a noteworthy amount of business based on Bitcoin without the IRS noticing it?
IRS will surely notice that people are talking about Bitcoins, but there will be no way to incriminate anything to specific Bitcoins users, unless there is a serious flaw in their design, or the government seizes computers AND extorts passwords.
Call it a “unique form of domestic terrorism” and put its users into jail. Game over for Bitcoin.
This requires criminalizing use of any encryption. No government wants to show its true ugly face.
So I think the strength of Bitcoin lies in the fact that it does not play a major part in the economy yet, that it is a small circle of people using it.
I am not advocating specific design or implementation, but the basic approach seems sound - the only way to close this operation is to criminalize encryption as such, which is possible, but quite costly for the government (in terms of PR and lost consent, not in monetary terms).
The IRS and judiciary don’t rely on facts. They use force. There is no proof anyone is a taxpayer, or that any income is taxable, or that the state exists, and that doesn’t stop the lawyers and IRS agents from collaborating to extort money from people.
Bitcoin has value as an underground niche currrency, nothing more. That however, may be all we can hope for.
I think we are in agreement, that brute force trumps any design - but a good design may make prosecution costly enough for government not to bother, unless transactions grow into multimillions.
Is there anything that costs too much that governments don’t do it?
Let’s not be naive. We’re dealing with people who will kill you before they allow you to reform the monetary system. If Bitcoin’s value proposition is “wishful thinking” I’m not sure that will be effective.
By “costly” I meant costly in terms of lost consent. I presume every government values consent.
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However there is no reason why any other currency couldn’t be offered in the same way.
No amount of back end work will make bitcoins truely anonymous. You can’t go into normal transactions of say like purchasing a house with a title transfer. Your not going to pay for rent anonymously, even if you do use BTC’s. The landlord needs to know whos paying rent. Your not going to buy a computer without a promise of warantee. All these services and contracts you sign or agree to leave your name pegged to them. The IRS does not need to see what type of currency the transaction was done in they just simply need to see proof that the transaction occured in the first place. They can compute from there based on the transaction, in their mind, what your profit/loss was.
Your not going to make every day trade anonymous. People heavily depend on the absence of anonomynity when it comes to daily transactions with their vendors. People want to feel safe in that their vendors know who they are and that they can get service on demand because of that relationship of trust. This record of historical transactions, regardless of the currency type, or regardless of how hidden, will always be readily available.
I have safeway/QFC card, for example, that records my every purchase. Not the dollar value, but it keeps track of my purchasing history to ensure that QFC/Safeway stalks their shelves with goods I want. It also ensures that I get coupons and advertisements relevant to me. There is just too much value in sharing this data of transactions between producers and consumers. It ensures the delivery of better products. We’d be taking a huge step backwards if we were to eliminate this.
The same would apply to users who trade with liberty coins. BTC’s aren’t any more anonymous then two private parties performing an exchange behind closed doors.
Not necessarily.
A) Don’t assume the government will follow any set of standardized rules
B) They can just make up a law which outlaws digital currencies. They can prosicute you just like they did Bernard von NotHaus.
If you can come up with a commodity backed currency that is simultaneously secure, remote, anonymous, decentralized then BitCoins would not be able to succeed compared to this currency. However, I do not believe such a currency is possible. How do you propose to create such a currency with all of these attributes?
The argument for BitCoin is that it simultaneously has those 4 attributes which is not possible with a commodity backed system. This is the reason people may want to switch from their national currency or any other currency.
I don’t. I’m not an entrepreneur in this industry. However I see no technical or theoretical roadblock for such a currency to be created.
A protocol could easily be made available to currencies of all types. The protocol creating a secure, remote, and anonymous vehicle for transactions in monies. It could be applied to any currency. Paypal is already halfway there. Giving the power to be applied to anything would give you your decentralization. Ofcoarse it’s not my task to explain to you the mechanics of how it would work. Just as someone created Bitcoin in C++ someone could create a secure/remote transaction system. We already have things like SSL ect…
The technical possibility is already there. I don’t need to explain the C code to you to argue that it could be done. This is also a red-herring and moves away from the main point.
You concede that BTC’s offer nothing of greater value then other currencies like it. Worse you concede that BTC’s would not be able to compete with a similar currency that actually represented real value as well, such a stock.
Just as easily that someone created bitcoin someone else could create bytecoin. Why would I choose bitcoin? And if I wouldn’t how can you assert that it will succeed?
Also your overplaying the anonominity attribute. Not only is not as desired as you proclaim(OTherwise we would alreday have people demanding transactions anonymously) it would actually be a deterrent for many transactions. For if you make the currency exchange itself anonymous daily transactions are still recorded and accounted for. If you purchase a graphics card do you not also get a warantee? Is that warantee guaranteed to Mr. Anonymous? If I have goods delivered to my door from Amazon fresh are they delivering to the house of Mr. Anonymous? If you buy a house do you get a title to that property? Is the title signed to anonymous?
Forcing everyone to trade anonymously would be doing the economy a dis-service. We would be moving backwards in productivity, not forwards. So the point is while you might make the transactions anonymous the human relationships are not and the contracts signed are not. BTC’s are no more anonymous then two men exchanging coins behind closed doors.
In my mind people won’t care that BTC’s are “anonymous”. That is not a driving force in what people want in a currency, never has been.
It seems that people think BitCoins could be effectively shutdown by the government so there are no advantages to decentralization & anonymity. If we look back at all of the attempted non-national currencies such as the Liberty Dollar they are shutdown because they are centralized. The Liberty Dollar was shutdown because the central minting establishment was shutdown, not because they caught every person using Liberty Dollars. If you look at the various attempts at digital currencies it’s the same thing. The government goes after the central companies that handle the goods. They go after the “banks”, the “mints”, etc.
BitCoin doesn’t have any “head to cut off”. The government can’t stop the production, use, or spread of BitCoins short of shutting down the internet. As long as people can communicate over the internet then people can use BitCoins.
If you wanted to live off the grid and hide from government taxation right now how would you do it? My guess is living on cash. You can buy all necessary goods/services with cash and most luxury goods with cash as well. The government, in it’s current state, can’t effectively monitor the movements of every human in their country so they rely on reporting by banks, employers and individuals to collect taxes.
Sure, Google, Microsoft, Walmart, etc. would likely report their transactions to the IRS and pay their taxes but the individuals in society can effectively do all their transactions in “cash”, even online. The point isn’t that no one would pay taxes but rather that it would be a whole lot easier to avoid taxes, just like it is trivial to avoid taxes if you do all your transactions in cash.
As a small business owner I could run an online business in BitCoins and not report any of it to the IRS and likely get away with it. I wouldn’t even have to tell the IRS I exist, unlike the current system where my bank tells them I exist. I would have to pay a premium on things like my rent and such in order to avoid notice (it’s more expensive to rent in cash than with a credit history) but if I chose I could easily go entirely off the grid in a BitCoin economy without being required to do all my transactions in person.
The last point in favor of BitCoin is that we don’t live in a libertarian world. We live in a statist world. Currently the government shuts down any alternative currency it can. As established above they cannot do this with BitCoins (no head to cut off) so they instead would likely try to tax it. Even if they could effectively tax it through something such as VAT where the taxes are all reported by big companies rather than by individuals it still has the major advantage over the current system in it’s inherant fixed and limited inflationary system.
If BitCoins became a major currency in the market at least there would be a fixed money supply that the government was not in control of. People could use BitCoins without fear of their value suddenly dropping because someone decided it was a good idea to print 50% more of it. This fact alone makes BitCoin advantageous to any of the current fiat moneys of the world, it is not and cannot be controlled by the government.
Why would they lose consent? All you have to do is say the word terrorist, and the animals will beg for more aggression.
Liberty Dollars are no centralized. They don’t try to be a one all medium of exchange. The beauty of gold is that any mint can make their own coin. The value of the currency isn’t in how the coin is minted or by whom it’s minted in. It’s valued in weight of gold/silver/copper. It doesn’t matter who made it or whos face is on the cover of the coin.
Secondly, all commodity base currencies are decentralized. In fact I don’t even know how you could have a centralized currency short of fiat.
Finally all commodity based currencies are every bit as anonymous as BTC’s are. BTC’s are only as anonymous as to two parties exchanging coins behind closed doors.
Commodity backing requires central stores of such a commodity therefore they cannot be decentralized. Either you physically trade the commodities (gold coins) which results in lack of the remote attribute along with the requirement of printing (centralized) or you centrally store the gold in a 100% backed digital currency (centralized). This is why you cannot create a commodity backed currency that is anonymous, remote, secure and decenttralized.
The reason BitCoin works in a peer-to-peer system is because data can be freely copied, unlike commodities. This means that everyone in the world can retain a copy of transaction histories thereby resulting in no central trust required, unlike a commodity store where you have to trust that someone is backing the digital currency. If I wanted to create a commodity backed digital currency I would not only have to be trusted by the people who used my currency but that trust requires a significant amount of infastructure work to prevent theft along with independant auditing to ensure accuracy/trust. These things both come at a very high cost and these high costs are what lead to centralization. Centralization gives the government a head to cut off if they want to tax or destroy the currency.
I believe this is enough proof to put that the burden on you to propose a commodity backed system that can somehow avoid these two poperties inherant in any commodity backed system. This isn’t just some matter that needs a technical savvy person to solve, this is a matter that requires a theoretical paradigm shift from an economist. So once again I ask, how do you propose a commodity backed system that has those four attributes?
There are two problems with your argument. First off, you are associating anonymity by choice with anonymity by force. BitCoin makes the money exchange anonymous. It doesn’t force people to behave anonymously. I can still use my grocery store club card when I make purchases so they can see my buying patterns. I can still sign contracts, transfer titles, maintain a credit history, etc. However, the point of anonymity is that I have the choice to remain anonymous if both parties agree to it. The grocery store doesn’t require I provide identification to purchase groceries, I just miss out on some incentives. There are places you can rent from that don’t require identification, though I am going to have to pay a premium due to my lack of credit history. As mentioned previously, think of anything you can do with cash and that is what you can do with BitCoin if you choose but add on to that the ability to purchase remotely and not having to carry around bags of cash.
The second problem is that you assume there is no desire for anonymity. I know people who live off the grid and use cash only. They are paid under the table, they don’t maintain a bank account, etc. The problem is that cash doesn’t allow them to make online purchases and it requires they manage their own security of their cash. Keeping money in the freezer or under the matress can work if you are living paycheck to paycheck but if you want to start saving anything cash falls apart and you are required to now go onto the grid, if only just for personal security not to mention convenience.
Also, the amount of people that actually use cash has decreased not because of a lack of desire for anonymity but rather because of the advantages of simplicity that remote banking allows. Only having to carry around a single piece of plastic is a huge boon to consumers and while many people want anonymity (again, I personally know many) it doesn’t outweigh the convenience of a remote currency (visa/mastercard/debitcard, etc.). BitCoin brings these features to anonymous transactions and I believe that many people would choose that over the non-anonymous forms of remote payment currently available.
BTCs are a little more anonymous than exchanging commodites. The participants dont have to meet directly, or through agents to facilitate the exchange.
I directly addressed this more in depth in my previous post but I want to stress it and address it again. Commodities are either not remote or not decentrtalized. You cannot have a remote decentralized commodity. You can have one or the other but not both. This is the key. It’s not possible to fully decentralize commodities without losing the remote aspect to them. The cost of trust is too high a barrier to entry to allow for truly decentralized commodity backed remote currency. Either the auditing agencies are somewhat centralized or the storage facilities are somewhat centralized. You cannot have a remote commodity backed currency that fully decentralizes.
If you believe otherwise, I am eager to hear how you propose such a thing. I would love to be proven wrong here because I can see a huge advantage to a commodity backed currency that has the other 4 key attributes.
Thats the equivilent of saying Safeway is my centeralized produce deliverer. Your conflating a business with a centralized organizer.
I can pick and choose which security funds or commodities I hold and trade with. I can pick and choose which banks I choose to deposit in. I’ll likely choose ones that already have built in remote transaction mechanisms. Like any main bank, master/visa, ect…(These institutions already exist and already have the infrastructure to perform what your arguing.) There is no central authority involved.
Your conflating centralization(Government centralization) with currency providing angencies? There is nothing in the delivery of a commodity based currency that mandates it must be centralized. Historicaly it has not been centralized and just because we move to the digital age doesn’t mean it has to be either.
This statement makes no coherent sense. Those people who want to transanct anonymously already voluntarily do so. Force never comes into the equation. No one is forcing you to transact anonymously with regular currency should you desire to so. So as I repeat again Bitcoin’s offer no real advantage here. Furthere more you’ve yet to prove that such an attribute is even widely demanded for.
This is already possible with existing currencies and candidate currencies.
Incorrect. I said it is not widely demanded for. Not that there is no demand at all. People who live anonymously have already had the means available of them to remain anonymous and have been employing those means for generations.
Drug dealers for example have been employing anonymous trades for centuries.
Yes I’ve conceded this point. What I wanted to state was that s oftware cuold easily be created to perform the same action for trades of different currencies. There is no reason why I cannot anonymously purchase from a website with my digital gold backed coin.
The feature is not an attribute gifted to bitcoins alone. Any currency could employ this practice given the technological means to do so.
[EDIT]
Furthermore any two parties who want to trade anonymously are perfectly capable of doing so absent software/technology. This practice has been going on for ages in exchange of information/ransoms of sorts/ect…
Well, the gold account would have to be settled in meatspace at some point, unless you’re talking about trading gold within a single institutional framework. BTCs aren’t limited to one framework for settlement because there are no physical goods to settle.
Absolutely. I didn’t claim it was unique to BTC, just a feature. Digital is not meatspace and a currency not tied to a meatspace commodity has enormous potential for some niche transactions.