Reply
 
Thread Tools Display Modes
  #1  
Old 07-11-2017, 05:45 PM
The Big Poo is offline
Guest
 
Join Date: Nov 2015
Posts: 33

What is the endgame of cryptocurrencies?


Lower transaction costs and greater security are nice but I don't understand what makes it so revolutionary. What is the significance of a decentralised currency.
  #2  
Old 07-11-2017, 06:55 PM
Bosda Di'Chi of Tricor's Avatar
Bosda Di'Chi of Tricor is offline
Charter Member
 
Join Date: Dec 1999
Location: Dogpatch/Middle TN.
Posts: 30,978
I dunno, but it sounds interesting enough to bump the Thread.
  #3  
Old 07-11-2017, 07:01 PM
Chronos's Avatar
Chronos is offline
Charter Member
Moderator
 
Join Date: Jan 2000
Location: The Land of Cleves
Posts: 81,825
Lower transaction costs? I can hand a dollar bill to someone for no transaction cost whatsoever.

I don't know about all of them, but the appeal of bitcoin is that, first of all, it's really easy to track, so it makes it very hard to conceal criminal activity using it, and second, that people are ignorant enough about computer security that it's really easy to fool them into thinking the opposite, and so to trick criminals to try to conceal it anyway.
  #4  
Old 07-11-2017, 09:14 PM
SamuelA is offline
Guest
 
Join Date: Feb 2017
Posts: 2,928
Quote:
Originally Posted by Chronos View Post
I don't know about all of them, but the appeal of bitcoin is that, first of all, it's really easy to track, so it makes it very hard to conceal criminal activity using it, and second, that people are ignorant enough about computer security that it's really easy to fool them into thinking the opposite, and so to trick criminals to try to conceal it anyway.
Chronos, I'm going to ask for some cites for that. We've had this discussion before, and you were unable to provide a specific mechanism by which law enforcement would track anyone using bitcoin if you cannot get records from both endpoints of a given transaction. You provided a cite last time I think that did not support your statement at all. (it was a cite where someone was able to determine that specific bitcoin transactions were involved with the Silk Road online illegal market, but not who the people were, or what was bought, or which drug dealer received the money, or anything else)

I think the reasonably well established straight dope on this is that while there are ways to trace bitcoin transactions, they are in fact mostly anonymous at the present time.
  #5  
Old 07-12-2017, 12:41 AM
Tim@T-Bonham.net is offline
Charter Member
 
Join Date: Mar 2003
Location: Minneapolis, MN
Posts: 14,661
Quote:
Originally Posted by Chronos View Post
Lower transaction costs? I can hand a dollar bill to someone for no transaction cost whatsoever.
Lower for you the customer, maybe, but not for the business:

- there are bank charges for depositing a large amount of cash into an account.
- there are costs for an employee to count the money & organize a deposit (or costs for them to wait while the teller counts it) and travel to/from the bank office.
- there are costs in providing a safe to keep the excess cash in at your business. If you have a lot of cash and a 'employees-can-not-open safe', you probably have to pay an armored car service to empty it regularly.
- there are costs associated with the small percent of counterfeits you receive. Avoiding them takes either expensive scanners or expensive employee time checking each bill (and annoying customers waiting in line).
- most purchases aren't even dollar amounts, so you have to maintain a supply of coins to give in change, and extra rolls in the safe in back. The bank charges you for sorting & counting the coins you deposit, and then charges you for the fresh rolls you withdraw.

Cash is definitely not 'free' to a business. Some of the costs may be less than bad checks or fraudulent credit cards, but there are costs.
  #6  
Old 07-13-2017, 05:17 PM
DrDeth is offline
Charter Member
 
Join Date: Mar 2001
Location: San Jose
Posts: 39,430
Quote:
Originally Posted by t-bonham@scc.net View Post
Lower for you the customer, maybe, but not for the business:


Cash is definitely not 'free' to a business. Some of the costs may be less than bad checks or fraudulent credit cards, but there are costs.
Altho all this is true and I have pointed some of them out myself, BitCoin is not all the easy to bank either.
  #7  
Old 07-13-2017, 05:20 PM
XT's Avatar
XT is offline
Agnatheist
Charter Member
 
Join Date: Apr 2003
Location: The Great South West
Posts: 34,539
Quote:
Originally Posted by Lemur866
Bitcoins aren't being kept in demand by one eccentric restaurateur, they're being kept in demand by a motley assortment of eccentric nerds/anarchists/criminals.
According to what I linked to earlier a large percentage are being kept by Chinese who are trying to get their money out of China or by the CCP who is trying to manipulate the currency for their own reasons. Neither of these groups would constitute 'eccentric nerds/anarchists/criminals' (well...ok, I think most of the CCP could be classified as criminals).
  #8  
Old 07-12-2017, 01:04 AM
Lord Feldon's Avatar
Lord Feldon is offline
Guest
 
Join Date: Dec 2010
Location: Central Ohio
Posts: 6,222
Quote:
Originally Posted by Chronos View Post
Lower transaction costs? I can hand a dollar bill to someone for no transaction cost whatsoever.
And the costs don't just evaporate into the ether. If I buy something online, I like that there's a company in the middle (funded by those evil fees) willing to throw its weight around on my behalf if I never get my stuff.

Last edited by Lord Feldon; 07-12-2017 at 01:07 AM.
  #9  
Old 07-11-2017, 11:41 PM
glowacks is offline
Guest
 
Join Date: Aug 2008
Posts: 2,061
From what I understand, the block chain keeps a log of all the transactions. You would be able to point out that payments were made in specified amounts from certain wallets to certain other wallets. One may be able to detect a pattern in the transactions that reveals the identity of the wallets based on other information that one has available. But I could be wrong.

I have a friend who works a lot on crypto-currency stuff, and I followed one of his Facebook post's links to someone's twitter feed who is even more active in the movement, and the guy who runs this feed is an absolutely hardcore anarchist. They are looking for a way of creating a system in which you can trust that there is value beyond the tokens you are exchanging without having a centralized bureaucracy/government providing the assurance. Cryptographic problems that are hard to solve and easy to verify provide a means of being able to provide proof of work, showing the society using the tokens that you did something useful and deserve tokens. Of course, the thing that's useful is simply the maintenance of the system itself, and in the end there is nothing backing the tokens besides the hubris of the users. Of course, they'll just say that's the only thing backing government money, but is controlled by the government. If they can manage to make the system scale up so that everyone in the world can use it and with minimal transaction costs, then they may have a point. The problem is that it's *not* scaling well, and transaction costs are rising.
  #10  
Old 07-12-2017, 12:41 AM
Little Nemo is offline
Charter Member
 
Join Date: Dec 1999
Location: Western New York
Posts: 79,969
I think the endgame is cryptocurrencies are going to collapse. They're an economic bubble. Bitcoins have less intrinsic value than tulip bulbs.

What are bitcoins backed up by? Nothing. Not even the good reputation of some government or corporation.
  #11  
Old 07-12-2017, 01:24 AM
Mangetout's Avatar
Mangetout is offline
Member
 
Join Date: May 2001
Location: England
Posts: 57,842
Quote:
Originally Posted by Little Nemo View Post
I think the endgame is cryptocurrencies are going to collapse. They're an economic bubble. Bitcoins have less intrinsic value than tulip bulbs.
Printed banknotes aren't very much better though. Metal coins I suppose have an intrinsic scrap value, but not typically anything like their face value.

Quote:
What are bitcoins backed up by? Nothing. Not even the good reputation of some government or corporation.
Currency is an illusion - the good reputation of governments and corporations is just a more compelling illusion. If things turn wobbly, governments aren't going to start exchanging gold bars for banknotes - quite the opposite, in fact.

Cryptocurrencies are less well-entrenched in the public psyche, which counts for a lot in the illusion of currency, so I don't disagree with your point, but it's all part of the same continuum.

Last edited by Mangetout; 07-12-2017 at 01:25 AM.
  #12  
Old 02-02-2019, 04:25 PM
snoe is offline
Guest
 
Join Date: Mar 2016
Posts: 1,257
Quote:
Originally Posted by Mangetout View Post
Metal coins I suppose have an intrinsic scrap value, but not typically anything like their face value.
The notable exception.
  #13  
Old 07-12-2017, 01:33 AM
Princhester is offline
Charter Member
 
Join Date: Jan 2001
Location: Brisbane, Australia
Posts: 14,257
Quote:
Originally Posted by Little Nemo View Post
What are bitcoins backed up by?
The degree of public faith in their continuity, same as for government currency.

That degree is lower for bitcoins than for USD, but it is only a quantitative rather than qualitative difference.
  #14  
Old 07-12-2017, 06:40 AM
Alessan's Avatar
Alessan is online now
Guest
 
Join Date: Jul 2000
Location: Tel Aviv
Posts: 23,962
Quote:
Originally Posted by Princhester View Post
The degree of public faith in their continuity, same as for government currency.
Well, no, government currency is also backed by law. So long as the government is required to pay its employees and accept tax payments in government currency, and so long as the government can compel merchants to accept it, there will always be a market for government currency that just doesn't exist for cryptocurrencies.
  #15  
Old 07-12-2017, 06:57 AM
Princhester is offline
Charter Member
 
Join Date: Jan 2001
Location: Brisbane, Australia
Posts: 14,257
Quote:
Originally Posted by Alessan View Post
Well, no, government currency is also backed by law. So long as the government is required to pay its employees and accept tax payments in government currency, and so long as the government can compel merchants to accept it, there will always be a market for government currency that just doesn't exist for cryptocurrencies.
The government will only compel debtors to pay merchants in government currency, but the government can't compel merchants to provide goods and services in return for it.

And much of the rest of what you say is true in theory, but at a point when everything has gone south, it tends to become academic.
  #16  
Old 07-12-2017, 07:24 AM
GreenWyvern's Avatar
GreenWyvern is online now
Guest
 
Join Date: Jan 2008
Location: Cape Town
Posts: 1,322
People who imagine that cryptocurrencies can replace ordinary currencies appear to me to be fantasists or ideologues who don't have much grasp of real economics.

Bitcoin may be useful as a means of anonymously exchanging money over the internet, but if you couldn't convert a bitcoin into dollars then it would have no value. It's only use is as a means of exchanging 'real' money.

As long as there is a demand for anonymous internet transactions - and there always will be - there will be a place for cryptocurrencies. Probably sooner or later Bitcoin will be replaced by something better as the cryptocurrency of choice. When that happens the bottom will fall out of the Bitcoin market.

I can imagine that in the future 'real' currencies may start to use some of the methods developed by cryptocurrencies for handling some of their transactions, but they won't be replaced by cryptocurrencies.
  #17  
Old 07-12-2017, 08:32 AM
Little Nemo is offline
Charter Member
 
Join Date: Dec 1999
Location: Western New York
Posts: 79,969
Quote:
Originally Posted by Mangetout View Post
Printed banknotes aren't very much better though. Metal coins I suppose have an intrinsic scrap value, but not typically anything like their face value.

Currency is an illusion - the good reputation of governments and corporations is just a more compelling illusion. If things turn wobbly, governments aren't going to start exchanging gold bars for banknotes - quite the opposite, in fact.

Cryptocurrencies are less well-entrenched in the public psyche, which counts for a lot in the illusion of currency, so I don't disagree with your point, but it's all part of the same continuum.
Quote:
Originally Posted by Princhester View Post
The degree of public faith in their continuity, same as for government currency.

That degree is lower for bitcoins than for USD, but it is only a quantitative rather than qualitative difference.
A dollar is backed by the reputation of the United States government. A bitcoin is backed by the reputation of ____. Now fill in the blank. What entity is guaranteeing the value of a bitcoin? Satoshi Nakamoto? The Bitcoin Foundation?
  #18  
Old 07-12-2017, 09:13 AM
Mosier is offline
Guest
 
Join Date: Oct 2003
Location: Vegas
Posts: 7,602
Quote:
Originally Posted by Little Nemo View Post
A dollar is backed by the reputation of the United States government. A bitcoin is backed by the reputation of ____. Now fill in the blank. What entity is guaranteeing the value of a bitcoin? Satoshi Nakamoto? The Bitcoin Foundation?
The US government doesn't guarantee the value of a dollar. The USD changes in value all the time, occasionally for frivolous or political reasons. In fact, that's the whole argument against national currencies and for bitcoin, because bitcoin can never be held hostage by the tea party (or it's equivalent) the way a dollar can.
  #19  
Old 07-12-2017, 09:20 AM
Mangetout's Avatar
Mangetout is offline
Member
 
Join Date: May 2001
Location: England
Posts: 57,842
Quote:
Originally Posted by Little Nemo View Post
A dollar is backed by the reputation of the United States government. A bitcoin is backed by the reputation of ____. Now fill in the blank. What entity is guaranteeing the value of a bitcoin? Satoshi Nakamoto? The Bitcoin Foundation?
I understand your point, but what form does the US Government guarantee actually take - I guess there's *management* of the currency going on, which isn't happening with bitcoin, but I don't think government guarantees are worth much if (as seems likely) they will evaporate if everything goes to shit.

The *perception* that the guarantee means something might be an important stability factor.
  #20  
Old 07-12-2017, 01:36 AM
davidm's Avatar
davidm is offline
Charter Member
 
Join Date: Mar 2002
Location: Near Philadelphia PA, USA
Posts: 12,257
Quote:
Originally Posted by glowacks View Post
From what I understand, the block chain keeps a log of all the transactions. You would be able to point out that payments were made in specified amounts from certain wallets to certain other wallets. One may be able to detect a pattern in the transactions that reveals the identity of the wallets based on other information that one has available. But I could be wrong.
...
At some point, the owner of a wallet will want to convert their bitcoin to cash or some commodity. Taking possession of that cash or commodity will reveal that you are the owner of that wallet, and if you obtained that bitcoin through illegal transactions then it could in theory be on some watch list.

You could of course create numerous wallets and move the bitcoin through a long chain of them before converting it, but in theory it could still be traced, and each movement has a transaction cost.

Quote:
Originally Posted by glowacks View Post
...
The problem is that it's *not* scaling well, and transaction costs are rising.
The cost of mining is also rising. If the price of a bitcoin doesn't keep pace with the cost of mining one then mining becomes pointless.

One question I have is whether quantum computing will have an effect. I'm not knowledgeable enough to know the answer. Will mining bitcoin become a trivial exercise? Will it become possible to forge transactions?
__________________
Check out my t-shirt designs in Marketplace. https://boards.straightdope.com/sdmb...php?p=21131885
  #21  
Old 07-12-2017, 08:09 AM
BeepKillBeep is offline
Guest
 
Join Date: Jul 2014
Location: Canada
Posts: 2,445
Quote:
Originally Posted by davidm View Post
One question I have is whether quantum computing will have an effect. I'm not knowledgeable enough to know the answer. Will mining bitcoin become a trivial exercise? Will it become possible to forge transactions?
I know very little about quantum computing. Just enough to be dangerous.

However, the professor right outside the lab where I work does work on quantum computing. It is the middle of the summer so he might not be in, but if he is I'll ask him.
  #22  
Old 07-12-2017, 08:00 AM
Chronos's Avatar
Chronos is offline
Charter Member
Moderator
 
Join Date: Jan 2000
Location: The Land of Cleves
Posts: 81,825
Quote:
Quoth GreenWyvern:

As long as there is a demand for anonymous internet transactions - and there always will be - there will be a place for cryptocurrencies. Probably sooner or later Bitcoin will be replaced by something better as the cryptocurrency of choice. When that happens the bottom will fall out of the Bitcoin market.
I can't see any other cryptocurrency replacing Bitcoin. It would certainly be possible to create one that, by objective measures, is better than Bitcoin, but the objective measures don't really matter. For currencies, what really matters is public perception, and most of the public don't understand enough to see the differences that make one better than another. If/when Bitcoin collapses, any other cryptocurrency that tried to replace it would be seen by the public as just more Bitcoin, and so it would start off already having a collapsed trust in it, and so never get off the ground to begin with.
Quote:
Quoth SamuelA:

Chronos, I'm going to ask for some cites for that. We've had this discussion before, and you were unable to provide a specific mechanism by which law enforcement would track anyone using bitcoin if you cannot get records from both endpoints of a given transaction.
You have full records of all bitcoin transactions already: That's built into the protocol. All you need from there is information about two of the other transactions, at any of the hundreds or thousands of endpoints.
  #23  
Old 07-12-2017, 08:39 AM
Little Nemo is offline
Charter Member
 
Join Date: Dec 1999
Location: Western New York
Posts: 79,969
Quote:
Originally Posted by Chronos View Post
I can't see any other cryptocurrency replacing Bitcoin. It would certainly be possible to create one that, by objective measures, is better than Bitcoin, but the objective measures don't really matter. For currencies, what really matters is public perception, and most of the public don't understand enough to see the differences that make one better than another. If/when Bitcoin collapses, any other cryptocurrency that tried to replace it would be seen by the public as just more Bitcoin, and so it would start off already having a collapsed trust in it, and so never get off the ground to begin with.
I think the next step will be some government issuing digital currency. It would have the "physical" characteristics of a bitcoin but it would be backed by an identifiable national economy.
  #24  
Old 07-12-2017, 11:09 AM
gazpacho is offline
Guest
 
Join Date: Oct 1999
Posts: 5,686
Quote:
Originally Posted by Little Nemo View Post
I think the next step will be some government issuing digital currency. It would have the "physical" characteristics of a bitcoin but it would be backed by an identifiable national economy.
We already have digital currency. The vast majority of my spending by value is done digitally and it was even before the rise of the internet. My mortgage was always paid by automatic withdrawal. My most recent house purchase didn't even have one physical check involved at all. more than 99.9% of my money exists digitally and has since my first job.

The thing bitcoin and the like were supposed to do was eliminate the need for banks to be involved in the transaction. But one of the first things to come up once bit coin got going were bank like things like MtGox. So they didn't even free us from the tyranny of rapacious bankers.
  #25  
Old 07-12-2017, 04:14 PM
SamuelA is offline
Guest
 
Join Date: Feb 2017
Posts: 2,928
Quote:
Originally Posted by Chronos View Post
You have full records of all bitcoin transactions already: That's built into the protocol. All you need from there is information about two of the other transactions, at any of the hundreds or thousands of endpoints.
Everyone knows that. And no, the only way you're going to bust someone solely based on bitcoin transactions is you need to

1. Seize the records of at least two endpoints
2. These endpoints need to have not scrubbed their records. The endpoints need to have the real contact information of a bitcoin buyer or seller.
3. Out of traceable (non laundered) transactions, did any of them go through the endpoints you have the records for?
4. Do you have other evidence as to the nature of a specific transaction?

None of this is easy to do. And the silk road laundered it's transactions, and I would assume that whatever dark market is occupying the niche the silk road was in does the same thing. The laundering screws investigations - someone would have to seize the records of the dark market, AND both endpoints in order to nail an individual illegal goods merchant. While obviously 2 dark markets have been brought down, it isn't easy to do, and requires the criminals running the markets to make mistakes.

What it comes down to is that at the present time, most illegal transactions conducted using bitcoin, the people doing them are getting away with it. Probably fewer people are busted who used bitcoins than who used cash and drove their car to transport the illegal goods. I think bitcoin will go down, eventually, because it really doesn't have a legitimate purpose. I would suspect that 90-99% of all transactions using it are some type of crime these days. So, eventually the authorities will require anyone buying or selling bitcoins for USD keep detailed customer records, or they may just ban it outright.

Last edited by SamuelA; 07-12-2017 at 04:18 PM.
  #26  
Old 07-12-2017, 08:32 AM
Chronos's Avatar
Chronos is offline
Charter Member
Moderator
 
Join Date: Jan 2000
Location: The Land of Cleves
Posts: 81,825
I think that Bitcoin uses RSA as part of its process, and RSA is one of the things that could be broken by a practical quantum computer. But so many other more important things also depend on RSA, that we'd probably never even notice the damage it did to Bitcoin.
  #27  
Old 07-12-2017, 10:50 AM
DPRK is offline
Guest
 
Join Date: May 2016
Posts: 2,775
Quote:
Originally Posted by Chronos View Post
I think that Bitcoin uses RSA as part of its process, and RSA is one of the things that could be broken by a practical quantum computer. But so many other more important things also depend on RSA, that we'd probably never even notice the damage it did to Bitcoin.
It's been a while since I read the paper by "Satoshi Nakamoto", but I do not recall any mention of RSA. It definitely used elliptic-curve based digital signatures, and those are even more vulnerable than RSA to quantum computers.

Last edited by DPRK; 07-12-2017 at 10:51 AM.
  #28  
Old 07-12-2017, 08:42 AM
davidm's Avatar
davidm is offline
Charter Member
 
Join Date: Mar 2002
Location: Near Philadelphia PA, USA
Posts: 12,257
Quote:
Originally Posted by Chronos View Post
I can't see any other cryptocurrency replacing Bitcoin. It would certainly be possible to create one that, by objective measures, is better than Bitcoin, but the objective measures don't really matter. For currencies, what really matters is public perception, and most of the public don't understand enough to see the differences that make one better than another. If/when Bitcoin collapses, any other cryptocurrency that tried to replace it would be seen by the public as just more Bitcoin, and so it would start off already having a collapsed trust in it, and so never get off the ground to begin with.
...
I suspect that a replacement would immediately be subject to a speculator driven bubble, with each purchaser hoping to profit before the whole thing collapsed.
__________________
Check out my t-shirt designs in Marketplace. https://boards.straightdope.com/sdmb...php?p=21131885
  #29  
Old 07-12-2017, 10:16 AM
XT's Avatar
XT is offline
Agnatheist
Charter Member
 
Join Date: Apr 2003
Location: The Great South West
Posts: 34,539
Well, according to China Uncensored (warning, YouTube video), China is the future of Bitcoin at least. here is the article the video is based on.

Quote:
Why has Bitcoin price become volatile again?

The short answer to that question is China.

On Feb. 9, 2017, Bitcoin price has plunged by more than 9%. The fall took place after an extended period of growth: Bitcoin value has been rising for more than a year - from around $230 a piece to over $1000.

The previous growth, and, especially, the latest drop were both a result of market sentiment caused by news from China. Huobi and OKCoin, the two largest cryptocurrency exchanges in the country, have announced that they stopped all Bitcoin and Litecoin withdrawals for a month. The pause is needed for the companies to implement software updates. They will be in compliance with the new, stricter AML regulations recently issued by the People’s Bank of China (PBoC).

This is not the first market crash brought about by the news coming from the People’s Republic of China. The curious relationship between Bitcoin, China in general and the Chinese government, in particular, is an ongoing topic for debate and for a good reason.
If anyone wants to watch yet another video, here is SciShow's video on how Bitcoin and cryptocurrencies work.

Last edited by XT; 07-12-2017 at 10:18 AM.
  #30  
Old 07-12-2017, 05:46 PM
Chronos's Avatar
Chronos is offline
Charter Member
Moderator
 
Join Date: Jan 2000
Location: The Land of Cleves
Posts: 81,825
Seizing endpoint records is difficult in the underworld. But the underworld economy has to interact with the legitimate economy, or it's worthless. And getting records from legitimate companies is easy, for the police (at most requiring a subpoena, and sometimes not even that).
  #31  
Old 07-12-2017, 07:38 PM
SamuelA is offline
Guest
 
Join Date: Feb 2017
Posts: 2,928
Quote:
Originally Posted by Chronos View Post
Seizing endpoint records is difficult in the underworld. But the underworld economy has to interact with the legitimate economy, or it's worthless. And getting records from legitimate companies is easy, for the police (at most requiring a subpoena, and sometimes not even that).
Citation needed. From what I know, most of the endpoints are grey market and there is no legal requirement for them to keep records. So at the present time, bitcoin is mostly anonymous. It is not in fact easy for the police at the moment.
  #32  
Old 07-13-2017, 03:49 AM
Ramira's Avatar
Ramira is offline
Member
 
Join Date: Jan 2003
Posts: 3,744
Quote:
Originally Posted by SamuelA View Post
Citation needed. From what I know, most of the endpoints are grey market and there is no legal requirement for them to keep records. So at the present time, bitcoin is mostly anonymous. It is not in fact easy for the police at the moment.
There is as a citation this Forbes article describing the experiment by the journalists working with a computer scientist that demonstrated how they could ID supposed anonymous transactions.

It is indeed supporting Chronos' statement and showing the supposed anonymity is false as the transaction clues can be accumulated and cross referenced with the chain.

The physical cash is more anonymous.
  #33  
Old 07-12-2017, 07:37 PM
Chronos's Avatar
Chronos is offline
Charter Member
Moderator
 
Join Date: Jan 2000
Location: The Land of Cleves
Posts: 81,825
Sure, the US Dollar has had some periods where its value has fluctuated greatly. But can you find any period in the dollar's history, and any period of the same length in bitcoin's history, where the dollar has fluctuated more than bitcoin?
  #34  
Old 07-13-2017, 03:55 AM
Ramira's Avatar
Ramira is offline
Member
 
Join Date: Jan 2003
Posts: 3,744
Quote:
Originally Posted by Chronos View Post
Sure, the US Dollar has had some periods where its value has fluctuated greatly. But can you find any period in the dollar's history, and any period of the same length in bitcoin's history, where the dollar has fluctuated more than bitcoin?
Correct, the cyber currencies do not demonstrate good properties to date for the general operational stability of the value for transactions.

They are showing the signs of being essentially simply the speculative vehicles, like a gold asset but stripped of the non speculative usage properties.

The technology may be interesting for development in the financial services but the idea of the crypto currency is something that looks like something that is appealing to the anglo saxon fringe political tendencies and the criminals not having full understanding that the promise of anonymity under normal usage is a mirage.
  #35  
Old 07-13-2017, 11:13 AM
Hellestal is offline
Charter Member
 
Join Date: Aug 2002
Location: Storyland
Posts: 2,002
Quote:
Originally Posted by Little Nemo View Post
you're seem unclear on what it means for a currency to be backed. It has nothing to do with how the currency is generated.
You are now trying to tell an astronomer that the moon is made of cheese.

Quote:
Originally Posted by Little Nemo View Post
Bitcoins are generated by a mathematical process. Sudoku puzzles are solved by a mathematical process. There's no objective reason why a mining a bitcoin has any more value than solving a sudoku puzzle.
Different kinds of math can be used for different things.

The math used for sudoku is not the same as the math used for Bitcoin.

The math used for Bitcoin is designed for the protection of Bitcoin ownership.

The differences between the two types of math are objective differences.

These objective differences in math provide objective reasons for their difference in value.

The differences between these mathematical processes would be easily distinguishable by anyone with a math education beyond the middle school level. (Not that a middle schooler could understand the encryption, but they could recognize that the kinds of maths are different.)

You do not seem to understand this.

I will adjust my own posting style accordingly.
Quote:
Originally Posted by Little Nemo View Post
There's no real asset behind a bitcoin.
There is no "real asset" behind a US dollar either.

This has been explained before in this thread.

When your criticism encompasses both together, you demonstrate that you understand neither.

You should understand something before you try to criticize it.

Quote:
Originally Posted by Little Nemo View Post
It's the equivalent of owning a fantasy football team. If the guys in your fantasy football league all decide they don't want to play fantasy football anymore, how much is your team worth?

You can argue that there's no real asset behind a real football team also. After all, people might decide to stop watching football and then how much value would there be in owning the New England Patriots? You might as well own a soccer team.

But that's a false comparison.
You are making an assertion here.

Now here is the problem.

(Again.)

You need the evidence for your assertion to distinguish the relevant cases in an objective manner.

Does your following "argument" distinguish the cases?
Quote:
Originally Posted by Little Nemo View Post
People do watch football and there's no evidence that they're going to all stop doing so. So the New England Patriots are a real asset. Their ongoing worth has been established. Even if Robert Kraft woke up tomorrow and decided he no longer cared about football, he knows there are other people who do care and would be happy to pay him for the assets he no longer cares about.
Now let us do a simple replacement:
Quote:
People do [trade Bitcoin] and there's no evidence [yet] that they're going to all stop doing so. So [Bitcoins] are a real asset. Their ongoing worth has been established. Even if [a Bitcoin owner] woke up tomorrow and decided he no longer cared about [owning Bitcoin], he knows there are other people who do care and would be happy to pay him for the assets he no longer cares about.
Every sentence still applies.

Not at the same confidence level into the future, but every replaced sentence remains true for the present

You claim two things are the same as each other and they end up being objectively different in painfully obvious ways.

You claim that two things are different, but your argument for what is supposed to make them different ends up applying to both things equivalently.




You might not be personally embarrassed by your posts here. You might not even understand the fundamental issues that I'm raising.

Nevertheless, I am becoming vicariously embarrassed on your behalf.
  #36  
Old 07-13-2017, 12:07 PM
GreenWyvern's Avatar
GreenWyvern is online now
Guest
 
Join Date: Jan 2008
Location: Cape Town
Posts: 1,322
Suppose a group of people decides to trade among themselves using cowrie shells. They set up a cowrie shell exchange which exchanges dollars for cowries and vice versa. They agree that they will accept cowrie shells for goods, and they speculate in cowrie shells (by buying them with dollars). The number of shells is limited, but anyone who wants to spend time wandering along the sea shore trying to find cowrie shells is welcome to do so, and to use any shells they find.

However, cowrie shells are not legal tender in the country, cannot be used for paying taxes or for any government transaction, and are not accepted by most shops and businesses.

How is this different from bitcoin, except that bitcoins are mathematical rather than physical objects?
  #37  
Old 07-13-2017, 12:59 PM
Ramira's Avatar
Ramira is offline
Member
 
Join Date: Jan 2003
Posts: 3,744
Quote:
Originally Posted by GreenWyvern View Post
S...

However, cowrie shells are not legal tender in the country, cannot be used for paying taxes or for any government transaction, and are not accepted by most shops and businesses.

How is this different from bitcoin, except that bitcoins are mathematical rather than physical objects?
The traceability of the block chain and the non physicality are very different.

Your hang up on the legal tender is a developped country obsession. the history of developing countries having the de facto parallel currencies (as in the Mark, the Dollar) that are dominant even to the legal tender is the ample refutation that this aspect is very relevant. the same for the idea that the ability to pay the taxes to the home government is also a key condition.

the factors of the stability in the relative value to the other means of exchange and other means of the storage of value, the historiy of the reliability and the liquidity, these are the quite demonstrably important factors for a successful currency.
  #38  
Old 07-13-2017, 01:34 PM
GreenWyvern's Avatar
GreenWyvern is online now
Guest
 
Join Date: Jan 2008
Location: Cape Town
Posts: 1,322
Quote:
Originally Posted by Ramira View Post
The traceability of the block chain and the non physicality are very different.
If you don't understand what is meant by an analogy, look it up.

Quote:
Originally Posted by Ramira View Post
Your hang up on the legal tender is a developped country obsession.
No, it simply means that a cryptocurrency can never replace a national currency. Also note that the value of a bitcoin depends on its current exchange rate with legal tender, nothing else.

Quote:
Originally Posted by Ramira View Post
the factors of the stability in the relative value to the other means of exchange and other means of the storage of value, the historiy of the reliability and the liquidity, these are the quite demonstrably important factors for a successful currency.
The bitcoin exchange rate is extremely unstable, so by your own argument bitcoin is an unsuccessful currency.
  #39  
Old 07-13-2017, 04:16 PM
Ramira's Avatar
Ramira is offline
Member
 
Join Date: Jan 2003
Posts: 3,744
Quote:
Originally Posted by GreenWyvern View Post
If you don't understand what is meant by an analogy, look it up.
The misplaced snideness fails - the analogy to the cowry fails as the bit coin is fundamentally different in embedding as a fundamental aspect of its existence the entire history of transaction.

Or yes, you made a superficial analogy that brought not any added understanding but to illustrate the lack of understanding.

Quote:
No, it simply means that a cryptocurrency can never replace a national currency
That is generally compltely false and continues your lack of understanding of the economics of currencies and false presumptions.

We have seen in real economic history non official currencies effectively replace legal currency in basically all transactions in economies.

so the bald assertion a cryptocurrency can never replace a nation currency is simply false on the historical facts. Alternative currencies have replaced national currencies without being formal legal tender.

It is an open question if a crypto currency can accrue the key features that would allow this over time.

Quote:
Also note that the value of a bitcoin depends on its current exchange rate with legal tender, nothing else.
The statement is... so poor in its understanding it is not even rising to being wrong, it is a banality.

The value of the bitcoin depends on the reletive demand, which is not insightful at all. The relative relationship to the other currencies and the other stores of the value, this is not something unique to bit coins and to observe this is pure banality (and/or pure misunderstanding).

the important feature is the fixed and the immutable supply relative to the varying demand, not that this is in relation to the other currencies (which again is a banality that is true trivially of all currencies that are not in a closed system).

Quote:
The bitcoin exchange rate is extremely unstable, so by your own argument bitcoin is an unsuccessful currency.
That seems indeed likely that it is not in any way able to be a widely successful general currency, but has not one thing to do with my comments.

By the funny triumphal declaration "by your own argument" you seem to have the completely mistaken belief that if one is criticizing your incorrect understandings on currencies, that it is from the idea of supporting the bit coin as a successful currency (or even as a good idea). Both of those are completely absent from my statements.
  #40  
Old 07-13-2017, 04:48 PM
Little Nemo is offline
Charter Member
 
Join Date: Dec 1999
Location: Western New York
Posts: 79,969
Quote:
Originally Posted by GreenWyvern View Post
Suppose a group of people decides to trade among themselves using cowrie shells. They set up a cowrie shell exchange which exchanges dollars for cowries and vice versa. They agree that they will accept cowrie shells for goods, and they speculate in cowrie shells (by buying them with dollars). The number of shells is limited, but anyone who wants to spend time wandering along the sea shore trying to find cowrie shells is welcome to do so, and to use any shells they find.

However, cowrie shells are not legal tender in the country, cannot be used for paying taxes or for any government transaction, and are not accepted by most shops and businesses.

How is this different from bitcoin, except that bitcoins are mathematical rather than physical objects?
How many dollars does the cowrie collective have in its reserve? Do they have enough to pay out if everyone decided to convert their cowries to dollars?

Suppose I own a restaurant and I really love cowrie shells. So I announce that anyone can buy a meal in my restaurant for a dozen cowrie shells. I've created a demand for cowrie shells. You can walk along the beach and collect twelve shells and exchange them for a meal. Or you can get a guitar and play songs on the beach and ask people to give you cowrie shells in exchange for the entertainment. You then take the cowrie shells you receive each day and exchange them for meals at my restaurant (assuming you're entertaining enough). So a cowrie shell based economy can exist and work. It just requires that some people have cowrie shells that they're willing to exchange for other goods and some people have other good that they're willing to exchange for cowrie shells.

But the linchpin of the cowrie shell economy is my restaurant. Cowrie shells may be passed around through dozen of hands before somebody gets hungry and decides to trade them in for a meal at my place. But that's their ultimate destination. If I close my restaurant and retire, then the cowrie economy is going to collapse. It might not be immediate. People might still pass cowrie shells around for a while but pretty quickly everyone is going to realize there's no point to it. If you're playing your guitar and somebody throws some cowrie shells in your basket, it's going to be no different than if they threw in some bottlecaps or a handful of sand. You're going to be hungry at the end of the day and you don't have anything that anyone is going to give you food for.

Last edited by Little Nemo; 07-13-2017 at 04:50 PM.
  #41  
Old 07-13-2017, 05:16 PM
Lemur866's Avatar
Lemur866 is offline
Charter Member
 
Join Date: Jul 2000
Location: The Middle of Puget Sound
Posts: 22,358
Quote:
Originally Posted by Little Nemo View Post
If you're playing your guitar and somebody throws some cowrie shells in your basket, it's going to be no different than if they threw in some bottlecaps or a handful of sand. You're going to be hungry at the end of the day and you don't have anything that anyone is going to give you food for.
Right, but back in the day when cowrie shells really were used as money, it wasn't just one eccentric guy who created the demand. It was lots and lots of people. Cowrie shells were used to create jewelry, just like gold and silver, and so decorative value of the shells created the market for cowrie shells as a good, which lead to them being treated as a key good, which made them used as money.

Bitcoins aren't being kept in demand by one eccentric restaurateur, they're being kept in demand by a motley assortment of eccentric nerds/anarchists/criminals. So of course it can only be used as money because those eccentric people accept it as money, and if they stop being so eccentric for five minutes the whole thing fizzles. When is it going to fizzle? Tomorrow? Ten years from now? Who knows. Just saying, don't take your retirement money and buy Bitcoins. Because Bitcoins really do work as money today, but might not tomorrow. Same thing with US dollars or Euros, only a lot more so.
  #42  
Old 07-13-2017, 04:27 PM
Little Nemo is offline
Charter Member
 
Join Date: Dec 1999
Location: Western New York
Posts: 79,969
Quote:
Originally Posted by Hellestal View Post
Different kinds of math can be used for different things.

The math used for sudoku is not the same as the math used for Bitcoin.

The math used for Bitcoin is designed for the protection of Bitcoin ownership.

The differences between the two types of math are objective differences.

These objective differences in math provide objective reasons for their difference in value.

The differences between these mathematical processes would be easily distinguishable by anyone with a math education beyond the middle school level. (Not that a middle schooler could understand the encryption, but they could recognize that the kinds of maths are different.)

You do not seem to understand this.
I think the fact that I called it nonsense proves I understand it. It's not an issue of what kind of math is being used, so the argument you keep making is pointless. No kind of math can instill value in a currency.

Quote:
Originally Posted by Hellestal View Post
There is no "real asset" behind a US dollar either.

This has been explained before in this thread.

When your criticism encompasses both together, you demonstrate that you understand neither.

You should understand something before you try to criticize it.
Again, I think my criticism makes it obvious I do understand it. There are real assets behind United States currency. The United States is a big country. It has land and resources. It has a population of over three hundred million people. It has armed forces and nuclear weapons. Those are all real assets. And they're a list of things bitcoins do not have behind them.

Quote:
Originally Posted by Hellestal View Post
People do [trade Bitcoin] and there's no evidence [yet] that they're going to all stop doing so. So [Bitcoins] are a real asset. Their ongoing worth has been established. Even if [a Bitcoin owner] woke up tomorrow and decided he no longer cared about [owning Bitcoin], he knows there are other people who do care and would be happy to pay him for the assets he no longer cares about.

Every sentence still applies.
No, it doesn't. Bitcoins were invented eight years ago, which means they have no extended history of holding their value. As I pointed out above, they have no real assets to back them up. They fluctuate wildly in value. These are objective facts that show how unproven their ongoing value is. As I mentioned above, bitcoins are the equivalent of tulips. Sure, speculation can drive their price up for a while. But ultimately fundamental economic reality will reassert itself and people will realize that a bitcoin has less actual real value than a tulip bulb has.

Quote:
Originally Posted by Hellestal View Post
You might not be personally embarrassed by your posts here. You might not even understand the fundamental issues that I'm raising.

Nevertheless, I am becoming vicariously embarrassed on your behalf.
I notice that as your arguments get weaker, you raise the level of personal attacks.

Last edited by Little Nemo; 07-13-2017 at 04:29 PM.
  #43  
Old 07-13-2017, 05:09 PM
Lemur866's Avatar
Lemur866 is offline
Charter Member
 
Join Date: Jul 2000
Location: The Middle of Puget Sound
Posts: 22,358
Can we agree that money is a funny concept, and several things about it that seem like common sense facts are just opinions?

Could a cryptocurrency like Bitcoin someday become the de facto method for doing many or most transactions?

Sure, it could happen. But it doesn't seem likely to happen. Bitcoin itself is much more successful than anyone could have predicted, but it also has some features that seem like built-in booby traps that will limit it's use. The blockchain for instance, if you use Bitcoin you have to maintain a record of every Bitcoin transaction that has ever occurred. That's going to get more and more cumbersome. And of course the limit of 21 million bitcoins, which means that if Bitcoin becomes commonly used it will be horribly deflationary. That deflation means hoarding, which leads to more scarcity, which leads to more deflation. Of course Bitcoins are arbitrarily divisible, so you can buy a hamburger for 200 nanobitcoins. But it becomes like trying to conduct transactions in gold, when there's only a limited supply of gold in the world, eventually the price for a gram of gold has to be astronomical to cover all the needed transactions.

But that's not so much of a problem unless Bitcoin actually becomes a commonly used money. And it's only a problem for this particular implementation of a cryptocurrency, we could imagine another implementation that doesn't have this feature. The opposite problem of inflation then rears it's head. The point is, we want to keep the supply of money roughly equal to the demand for the money. When we're using lumps of gold and silver as money increased demand means you crank up the gold mines. The supply isn't quite fixed, and supply and demand reach some sort of equilibrium. But then you have disasters like the flood of gold and silver into Europe after the conquest of the New World. Or the constant outflow of precious metals from Europe to China and India as superior foreign goods crush domestic production.

Anyway, the well known problems with gold and silver money eventually resulted in the abandonment of even the pretense of backing paper money by precious metals.

So it seems to me that cryptocurrencies will run into the same problems, the inability to match the money supply to the money demand means either dramatic deflation or inflation. And the problem with replacing one failed cryptocurrency with another better designed one is that if Bitcoin fails then the demand for any other such cryptocurrency will be near zero. Since there are essentially unlimited such currencies, the marginal value of any particular new currency has to be zero.
  #44  
Old 07-13-2017, 08:36 PM
Hellestal is offline
Charter Member
 
Join Date: Aug 2002
Location: Storyland
Posts: 2,002
Quote:
Originally Posted by Little Nemo View Post
I think the fact that I called it nonsense proves I understand it.
Anyone can shout NONSENSE, for good reason or for bad.

You could be calling something nonsense for bad reasons, instead of good.

I understand that you, personally, believe that your reasons are good.

But calling something nonsense does not "prove" anything.

Do you understand that there is a difference between calling something nonsense, and actually providing decent arguments that it is nonsense? Do you understand that someone can personally believe that they are providing decent arguments, while everyone else thinks their logic is less than solid?

Quote:
Originally Posted by Little Nemo View Post
It's not an issue of what kind of math is being used, so the argument you keep making is pointless. No kind of math can instill value in a currency.
And yet Bitcoins are valuable.

Objectively, we can see that they are valuable.

People trade Bitcoins for other items they deem valuable, and they do this every day.

The question, then, becomes WHY Bitcoins are valuable.

The mathematics is part of the reason -- a necessary condition -- for their value.

It is not the only reason.

But I never said it was the only reason.

Quote:
Originally Posted by Little Nemo View Post
Those are all real assets.
And is it your belief that access to useful computer code is somehow not a "real asset"?

Do you realize that companies in the US pay good valuable dollars to programmers in order to create good code?

Do not realize that customers in the US are willing to pay good money in order to have access to programs that suit their needs?

If good computer code, which businesses are willing to pay to create and customers are willing to pay to buy, is not an example of "real assets", then what exactly is it? Should companies list code that they own as a "liability" instead of as an "asset" on their balance sheet, or what?

Quote:
Originally Posted by Little Nemo View Post
No, it doesn't. Bitcoins were invented eight years ago, which means they have no extended history of holding their value.
You are now quibbling about the definition of "extended history".

But eight years and running is actually a pretty good track record.

In fact, I would even go so far as to say that eight years has proven quite decisively the value of crypto-currency in general, if not Bitcoin in particular.

I am willing to bet cold hard cash, of the governmental variety, that on any timeframe you specify, at least one cryptocurrency will have a market capitalization in excess of one million USD. I am willing to donate to the charity of your choice on this, or a personal bet, if you'd prefer.

I am also willing to give you favorable odds on this, so that more is at stake on my end than on your end.
Quote:
Originally Posted by Little Nemo View Post
As I pointed out above, they have no real assets to back them up. They fluctuate wildly in value. These are objective facts that show how unproven their ongoing value is.
Absolutely nobody in this thread is arguing that the "ongoing value" of Bitcoin has been proven.

The issue is that for the last eight years, they have had quite a bit of value. Recently, a ridiculous amount.

The question of the thread (one of the questions of the thread) is WHY they have this value.
Quote:
Originally Posted by Little Nemo View Post
As I mentioned above, bitcoins are the equivalent of tulips.
Tulips make no particular sense as a store of value.

However, crypto-currency does make a certain bit of sense as a store of value, at least for anyone who has faith in the mathematical security of the algorithms.
Quote:
Originally Posted by Little Nemo View Post
Sure, speculation can drive their price up for a while. But ultimately fundamental economic reality will reassert itself and people will realize that a bitcoin has less actual real value than a tulip bulb has.
As I said above, I'm willing to bet on any timeframe you'd prefer.
Quote:
Originally Posted by Little Nemo View Post
I notice that as your arguments get weaker, you raise the level of personal attacks.
If you believe my post consisted of personal attacks, you are free to report it. This is GQ, after all.




Quote:
Originally Posted by Buck Godot View Post
As far as them being backed up by mathematics, I could just as easily declare my toe nail clippings to be currency securely backed up by biology. They would be in limited supply that can be authenticated with DNA testing. However that doesn't actually make me the richest man in the world.
I think you might've missed my other post in this thread where I discussed an exactly analogous case.




Quote:
Originally Posted by LSLGuy View Post
Subsuming all those things under "backing" using your personal weighting of importance of each of those is unlikely to persuade anyone whose personal weighting of those factors is different.
I'm not sure that's quite correct.

This discussion is happening on multiple levels. On the deeper level, I think some people have already been persuaded by other people's definitions of backing, at least to the extent that they think those other viewpoints are reasonable. On the shallower level, that hasn't happened and will continue not to happen, but I don't think the conversation as a whole should be judged by the narrowest understanding.

Last edited by Hellestal; 07-13-2017 at 08:38 PM.
  #45  
Old 07-13-2017, 06:19 PM
Chronos's Avatar
Chronos is offline
Charter Member
Moderator
 
Join Date: Jan 2000
Location: The Land of Cleves
Posts: 81,825
The US dollar is backed by the same thing as any other currency: The fact that there is a large number of people and organizations who have a large amount of trust in it. These people and organizations have so much trust in the dollar that they've made it known that they will accept dollars, in particular amounts, in exchange for particular goods and services. Now, it's nice that one such organization expressing faith in the dollar is very large and powerful, but that's neither necessary nor sufficient.

Bitcoin also has a fairly large set of people who trust it, but the set isn't nearly as large, nor the trust as great, as for the US dollar. So the bitcoin isn't as good a currency as the US dollar. At least, right now: It's possible that trust in the dollar could decrease, or that trust in bitcoin could increase. But it's also possible that it'll go the other way around.
  #46  
Old 07-13-2017, 07:31 PM
LSLGuy is offline
Charter Member
 
Join Date: Sep 2003
Location: Southeast Florida USA
Posts: 21,035
A lot of people are using the term "backing" as in "backing the currency" in conflicting and sloppy ways. Its unsurprising you're all talking past one another.

It might be worth setting that cliché word aside and instead talk about what attributes are helpful as to counter-counterfeiting, traceability / anonymity, long life, stable value, convertibility, wide acceptance, transaction costs, resistance to criminal manipulation, resistance to governmental manipulation, resilience under speculative attack, and a host of other desiderata of any currency from cowries to dollars to Bitcoin to quatloos.

Subsuming all those things under "backing" using your personal weighting of importance of each of those is unlikely to persuade anyone whose personal weighting of those factors is different.

Or so it seems to me.
  #47  
Old 07-13-2017, 11:39 PM
Francis Vaughan is offline
Guest
 
Join Date: Sep 2009
Location: Adelaide, Australia
Posts: 4,983
Some understanding of the history of money would not go astray here.

Money has not been the thing we understand now for its entire history. It has gone through a number of major changes, many of them brought about by economic collapse and disaster. Also, money as we know it has attributes that allow an economy to operate and grow.

In his book "Money, whence it came and where it went." John Kenneth Galbraith opens with the question of what money is. He has a simple, if obtuse, answer. It exactly what you think it is. No more and no less.

Now first up, currency isn't the same as money. A currency is simply one of many ways of representing money. We already have a great number of currencies in the world. Most of them are used as units of money. We talk of electronic money. The vast majority of everyday money is already electronic. Completely independent of any discussion of crypotcurrencies there is serious work towards moving to a cashless society in modern society. Right now I could probably go for weeks without ever touching a banknote or coin. Heck there are coffee places that only takes cards. They have no facility for cash at all, as it slows them down.

There is some talk about adopting blockchain technology to effect security in transactions involving existing conventional currencies. So Bitcoin and their ilk don't have anything special going on here either.

Bitcoin is designed so that there is a limited number possible. This is a feature of Bitcoin's design, it need not be intrinsic to cryptocurrencies. But it underlines the difference between Bitcoin and a government backed currency. Dollars, Euros, Yen, etc come into existence by the action of governments. They can also (in principle) vanish out of existence. (Printing money is a sideline, almost the entire wealth of money in existence is electronic, printed and minted money is in the noise.) Control of the amount of money in existence is critical to maintaining its utility. If we had a cowrie shell economy and someone discovered a huge mound of cowrie shells on a secluded beach, the economy would collapse.

So Bitcoin has away of controlling the amount of money, and provides a reward for generating currency. The value of a Bitcoin is currently mostly tied to the investment needed to create a new one. Which is the core problem with it. Once it is not possible to mine any more, what happens to the Bitcoin value? There will be vast numbers of computer facilities that in principle are now supposed to make money by providing services to the Bitcoin economy. But right now the economy is built on the ability of miners to create new money. The exchange rate for US dollars reflects the cost of making a new Bitcoin. So if I wish to purchase one, I am essentially paying for compute power. When mining becomes exhausted, or it becomes essentially impossible to compute new ones, the economy of mining will cease. Now it becomes essentially impossible to directly place a dollar value on a Bitcoin. You can come up with a secondary value - how much compute is needed to validate a transaction, and thus if you take a percentage of the transaction value, you can get a loose proxy for its value. But this depends upon the activity of the Bitcoin economy. To work it needs to have an active economy. And that economy has to be able to work with no internal industry driving it in the manner that mining currently does.

Which brings us to the overwhelming difference between Bitcoin and ordinary money. Money as we use it today enables the economy. It isn't just the unit of conversion of goods and services, the structure of money allows the economy to grow. And of course it does this via financial services. I can make money with money. Banks lend money, and the ability to borrow underpins the ability of the economy to work. This brings us to fractional reserve banking. This is how most money comes into existence. Control of this is the key point of how governments "back" their currency. Each currency has some central clearing mechanism that moves the real money about between banks. And the banks that subscribe to this are heavily regulated to ensure that confidence in the system is maintained. Ultimately this confidence is rooted in the most basic of assurances. No matter what, even if every client of a bank demands that they get their money today, the bank will be able to do so. Even if this means the backing government has to step in. It is this assurance that creates stability in the economy and allows it to function.

Bitcoin has no such backing. There is no reason anyone could not establish a lending bank for Bitcoin. No reason they could not indulge in fractional reserve banking. But absolutely no mechanism to ensure that if there is a run on the bank that there will be any money in there. This is the money of a couple of hundred years ago.

When Bitcoin first came out there was a FAQ section on their Website. In it the question of a run on Bitcoin happening and what would happen was discussed. They answer was simple. By then the Bitcoin economy would be so important that it would be "to big to fail" and the US government would find it politically impossible not to bail a failing bank out. Needless to say this page is now long gone.

But the underlying question of the difference between Bitcoin and a government backed currency is clear. The central banks in countries all around the world have a deal with their governments, a deal that has underpinned the stability of modern economies. The governments guarantee the banks, and in return the banks agree to abide by a range of regulations that control how they operate. In particular these regulations impose a minimum fractional reserve that a bank must hold, and impose rules on the range of investments (ie loans) that a bank may undertake. For instance highly leveraged speculation on the stock market is often frowned upon. The Fannie May and Freddy Mac failures in the US underpinned the difference in banks here. They were not as regulated, and they did fail. The government did bail them out, even though it did not actually have to. But post bailout those banks no longer have the freedom to operate as they did.

Economies need unregulated riskier banks. But if you bank with them you understand that you are taking a risk that may see you loose the lot. If you are a start-up company or need fast money to cover cashflow you will be talking to these banks for loans. Similarly, if you have a lot of money, and want to get a better return on it, and are willing to take the risks, you invest in these banks.

IMHO there is scant chance Bitcoin will ever underpin an economy of such vibrancy that failure of a bank will attract a bailout from any government. Most likely, post mine-out the Bitcon economy will collapse. It may struggle on, probably with a greatly diminished exchange rate for a while. If there are failures, or more large scale frauds, nobody will care except those that lost their Bitcoins.
  #48  
Old 07-14-2017, 01:27 AM
GreenWyvern's Avatar
GreenWyvern is online now
Guest
 
Join Date: Jan 2008
Location: Cape Town
Posts: 1,322
Nobody has yet mentioned that the Japanese Government has now recognized Bitcoin as legal tender - with severe Government regulations.

Bitcoin dealers must apply for a license costing about $300,000.
They must additionally deposit about $100,000 in contingency funds to a government account.
They must prove that they have a sufficient IT infrastructure.
They must have an approved training program for employees.

All customers must provide Government-approved identity documents.
There is a process in place for verification of physical addresses of customers.
Customers must provide full personal information, including profession and reason for Bitcoin transactions.

Dealers must keep records of all customers.
Dealers must keep records of all transactions.
These records must be available to the Japanese Government.

Bitcoin holdings are subject to capital gains tax.

Subject to these restrictions, Bitcoin transactions with registered dealers are now legal tender in Japan.

The Japanese Government is closely monitoring the situation, and may modify these regulations as necessary.
  #49  
Old 07-14-2017, 06:42 AM
LSLGuy is offline
Charter Member
 
Join Date: Sep 2003
Location: Southeast Florida USA
Posts: 21,035
Quote:
Originally Posted by Hellestal View Post
...
I'm not sure that's quite correct.

This discussion is happening on multiple levels. On the deeper level, I think some people have already been persuaded by other people's definitions of backing, at least to the extent that they think those other viewpoints are reasonable. On the shallower level, that hasn't happened and will continue not to happen, but I don't think the conversation as a whole should be judged by the narrowest understanding.
Overall I agree with your POV on Bitcoin as it's been fleshed out over your several posts.

Yet right now the big tit-for-tat marring the thread is the two of you essentially arguing over competing versions of the word "backing". Rather than unpacking the bundle into the various components that give rise to the idea in society that money is somehow "backed" and therefore safe (enough) to take and give in exchange for real goods and services. As well as safe (enough) to hold over some span of time between the taking and the giving.

IOW ... IMO what most folks mean by "backing" is the nebulous something(s) that makes them believe the currency/money is safe (enough) to use. There are a lot of necessary conditions and no single sufficient condition. Attempting to defend a single most-necessary condition is IMO a fool's errand.


Quote:
Originally Posted by Francis Vaughan View Post
Some understanding of the history of money would not go astray here.
...
If there are failures, or more large scale frauds, nobody will care except those that lost their Bitcoins.
A beautiful post. Thank you. Had it appeared earlier in the thread there'd be more light and less heat.

Which also demonstrates that Bitcoin and the rest of their ilk are ultimately misnamed. It's a cryptomoney, not a cryptocurrency. Which mis-naming invites all sorts of failures to communicate and failures to understand.

Admittedly one of the goals of Bitcoin specifically was to retain the anonymity of ordinary paper cash & metal coinage. They weren't necessarily trying to create a money, only a currency. But it was economically and historically illiterate of "Nakamoto" to think he could create a currency that wasn't also a money.

Last edited by LSLGuy; 07-14-2017 at 06:46 AM.
  #50  
Old 07-14-2017, 08:18 AM
Hellestal is offline
Charter Member
 
Join Date: Aug 2002
Location: Storyland
Posts: 2,002
Quote:
Originally Posted by LSLGuy View Post
Yet right now the big tit-for-tat marring the thread is the two of you essentially arguing over competing versions of the word "backing".
Yet I didn't personally mention "backing" at all in my last post, except with you tagged at the end. It's difficult to tat something with no more tit.

No, that's not it. What is causing the discomfiture of people who might prefer to scroll down, than to wade through, is the more fundamental notion of why things have value in the first place. That is the locus of the very, very bad arguments in this thread, and it is those bad arguments that I have focused exclusively on, not any particular definition of "backing". Quite to the contrary, I have fully accepted other people's different notions of backing, as long as those notions managed the minimum requirement of being self consistent.

That has, unfortunately, not always been the case. Even basic self-consistency has been too high a hurdle.

The nature of the inconsistency has been pretty much constant in the given arguments, appearing in one of two ways: first, the argument that X has no particularly value, therefore Y should also have no particular value. The problem is that all of the many manifold differences between X and Y are comprehensively ignored. (Bitcoin vs sudoku puzzles is the most egregious example of this but there are others.) The second path of bad argument: Y and Z are manifestly different, therefore it makes sense that Z has value and Y does not have value. Except that the reasons given for Y and Z to be different are either pre-defined to make them different, or when they are made properly general, it's clear that the general notion encompasses both Y and Z equally. (The most ridiculous example here being the football owner analogy, in which literally every sentence remained correct after a replacement to Bitcoin was done. Y and Z were equally valid, according to the actual argument given, but as soon as that was pointed out it was ignored.)

Now, you can personally appreciate the meta-argument I'm making right now in this post. You are blessed with full literacy in English. You just don't care, which is why the thread has been "marred" in your view.




Maybe I personally have a skewed perspective on this myself, but I nevertheless believe that this is important.

I'm something of a collector of economic fallacies. I see a lot of them, I sift through them, I categorize them. Fallacies about "value" are particularly interesting because they are so very fundamental to everything else. And that is what the tit-for-tat is actually about. Not: what is backing, but rather, what is value? What does it mean for something to be valuable? What does it mean for something to be reasonably valuable? And maybe you don't believe it, but the discussion is actually getting close to the kernel of this problem. That is what the whole "real assets" thing is all about, which is why so much of my last post focused on it. Some assets are real, you say? Okay then, what makes them real? I have starkly simplified my posts for the specific reason of focusing on those very fundamental questions, partly because higher-level discussion was clearly pointless but also because those fundamental questions interest me.

Given the track record of this thread, I should not reasonably expect a consistent answer to those questions.

But I might just see an answer that I haven't seen before.




You're interested in the other aspects of this conversation, like the difference between crypto-currency and crypto-money. That's a very important thing to discuss. In fact, I've been down that path before. I was personally saying on this board in 2011 that Bitcoin seemed to work more like a virtual gold than it did a genuine currency. (I misunderstood some technical things at the time, but still, a decent thread.)

But I can dig up that thread if you want to see what I mean about collecting fallacies: people were making some of the same errors six years ago that other people are making today. Misunderstandings about money tend to follow patterns, and I tend to study those patterns. What I've landed on here is something that, for the moment, seems different from what I've ever seen before. Part of that might merely be how spectacularly defective the "logic" has been, but another part of it seems to be how a poster might approach the question of what makes an asset "real" vs... something else.

Is the code owned by a company a "real asset"? If it's not a "real asset", then what exactly makes it not qualify? Why do people pay for it if it's not "real"? That's where I want this to go. I just have to put the steps on the logical path much closer together, in this particular case, than most of us are accustomed to handling.
Reply

Bookmarks

Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is Off
HTML code is Off

Forum Jump


All times are GMT -5. The time now is 05:37 AM.

Powered by vBulletin® Version 3.8.7
Copyright ©2000 - 2019, vBulletin Solutions, Inc.

Send questions for Cecil Adams to: cecil@straightdope.com

Send comments about this website to: webmaster@straightdope.com

Terms of Use / Privacy Policy

Advertise on the Straight Dope!
(Your direct line to thousands of the smartest, hippest people on the planet, plus a few total dipsticks.)

Copyright © 2018 STM Reader, LLC.

 
Copyright © 2017