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Old 07-11-2017, 05:45 PM
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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.
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Old 07-11-2017, 06:55 PM
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I dunno, but it sounds interesting enough to bump the Thread.
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Old 07-11-2017, 07:01 PM
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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.
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Old 07-11-2017, 09:14 PM
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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.
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Old 07-11-2017, 11:41 PM
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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.
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Old 07-12-2017, 12:41 AM
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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.
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Old 07-12-2017, 12:41 AM
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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.
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Old 07-12-2017, 01:04 AM
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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.
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Old 07-12-2017, 01:24 AM
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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.

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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.
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Old 07-12-2017, 01:33 AM
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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.
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Old 07-12-2017, 01:36 AM
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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.

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...
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?
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Old 07-12-2017, 06:40 AM
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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.
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Old 07-12-2017, 06:57 AM
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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.
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Old 07-12-2017, 07:06 AM
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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.
when everything has gone south, we'd most likely be bartering and trading essential goods, not cryptocurrencies like so many geek fantasies.
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Old 07-12-2017, 07:17 AM
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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.
Right, sorry, I confused customers with debtors.

So if I take a loan in Bitcoin, the lender cannot legally refuse to accept payment (principal and interest) in U.S. dollars? But not vice versa?
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Old 07-12-2017, 07:24 AM
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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.
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Old 07-12-2017, 08:00 AM
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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.
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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.
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Old 07-12-2017, 08:09 AM
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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.
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Old 07-12-2017, 08:32 AM
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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.
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Old 07-12-2017, 08:32 AM
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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.
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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?
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Old 07-12-2017, 08:39 AM
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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.
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Old 07-12-2017, 08:42 AM
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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.
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Old 07-12-2017, 09:13 AM
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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.
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Old 07-12-2017, 09:20 AM
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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.
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Old 07-12-2017, 09:50 AM
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Right, sorry, I confused customers with debtors.

So if I take a loan in Bitcoin, the lender cannot legally refuse to accept payment (principal and interest) in U.S. dollars? But not vice versa?
In the US, correct.

If you take out a loan in Bitcoin, you can repay the loan in dollars. You still have to have enough dollars to repay the loan, plus interest, based on the proper exchange rate. Or if the contract stipulates Bitcoin repayment, and you offer Bitcoin repayment, that must also be accepted. The lender can't suddenly demand dollars, but the borrower can repay in dollars even if the contract is written in Bitcoin terms.

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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.
Bitcoin is backed by the reputation of pure mathematics.

It's the encryption algorithms that people are relying on. This is exactly the same principle that backs our knowledge of the length of the hypotenuse of a right triangle, given the lengths of the other two legs. It's the same reason we know that x=4, given that x+3=7. It's even the same backing that engineers use to build bridges. The mathematical security of the encryption algorithms, given current computer speeds, is what protects the value of Bitcoin. If new faster computing methods are discovered, Bitcoin will no longer have that backing and its price will plummet, for the same reason that if someone attacks one of the supports of a bridge, no one will trust the bridge to support the same weight.
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Old 07-12-2017, 10:15 AM
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In the US, correct.

If you take out a loan in Bitcoin, you can repay the loan in dollars. You still have to have enough dollars to repay the loan, plus interest, based on the proper exchange rate. Or if the contract stipulates Bitcoin repayment, and you offer Bitcoin repayment, that must also be accepted. The lender can't suddenly demand dollars, but the borrower can repay in dollars even if the contract is written in Bitcoin terms.
I should add that this isn't really an issue that comes up anymore in developed countries.

Legal tender laws are most relevant immediately after a country has devalued its currency. The old law says the dollar is worth such-and-such amount of silver or gold, but the new law says the dollar is defined by not quite as much of the shiny. Legal tender law: you must accept dollars for payment of debts at their new legal valuation, not the old. You must accept the new dollars as if they were equivalent to the old. Such laws just don't mean much anything anymore in a places like the US or Japan or Europe etc., because the money is fiat from the beginning. No convertibility. There is simply no need to "devalue" against a precious metal and then enforce the new money as equivalent to the old. If the government wants more cash, they'll just type up more cash in the computer. (Smaller countries that peg their currency to other countries' currencies might still have some use for a legal tender law if they devalue against those other currencies. It would work exactly like devaluing against gold.)

What genuinely supports use of the dollar is not at all legal tender laws, but rather 1) banking regulations that mandate that banks keep their books in dollars. Most "money" that we use isn't even created by the government, it's created and maintained by private banks. Those banks must keep their accounting ledgers in dollars in the US, and so we use dollars whenever we use major banking services. And 2) the government takes tax payments in dollars and nothing else. Even if the banking system were deregulated, and private banks could accept deposits of gold, silver, etc. and print their own banknotes, people in the US would still have a constant demand for fiat dollars to meet our tax obligations unless the government changed its tax policy.

It's fully possibly even now to do business entirely in small flecks of gold or silver passed around, and then transfer to the USD whenever tax payments are due. But that's a bit silly. Might as well transact business in USD like everyone else -- a key reason it's valuable is that everyone else uses it -- and then you can pay your taxes in the same currency that you transact business and keep your books in, with no need to constantly recalculate the legally correct exchange rate for tax purposes.
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Old 07-12-2017, 10:16 AM
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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.
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Old 07-12-2017, 10:50 AM
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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.
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Old 07-12-2017, 11:02 AM
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Bitcoin is backed by the reputation of pure mathematics.
This is not true in any real sense. The math give you the confidence that the transactions cannot be easily corrupted. However with the bit coin mining pools consolidating it gets harder to say that you won't get over half the miners (transaction verifiers) controlled by one entity.

Bitcoin is backed by people confidence that they will be able to use bit coins to buy things they want. If people no longer feel that this will be true all the math in the world will not help. There are other crypto currencies that have just as good math behind them but they are not used at all.
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Old 07-12-2017, 11:09 AM
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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.
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Old 07-12-2017, 11:19 AM
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Bitcoin is backed by the reputation of pure mathematics.

It's the encryption algorithms that people are relying on. This is exactly the same principle that backs our knowledge of the length of the hypotenuse of a right triangle, given the lengths of the other two legs. It's the same reason we know that x=4, given that x+3=7. It's even the same backing that engineers use to build bridges. The mathematical security of the encryption algorithms, given current computer speeds, is what protects the value of Bitcoin. If new faster computing methods are discovered, Bitcoin will no longer have that backing and its price will plummet, for the same reason that if someone attacks one of the supports of a bridge, no one will trust the bridge to support the same weight.
I don't believe this is correct. Sure, the mathematics ensures that Bitcoins can't be "forged", and you can be sure that if you pay a Bitcoin or get paid a Bitcoin, it's an actual Bitcoin. And the mathematics ensures that Bitcoins can't be created by fiat, and there's only a limited supply of them.

That doesn't mean that actual Bitcoin has any value.

The real answer is that the value of Bitcoin is backed by the community of people who will accept Bitcoins as payment. If those people do that, then a Bitcoin has value. If they don't, then the Bitcoin has no value.

See, I could implement a cryptocurrency tomorrow, LemurCoin. And it could have exactly the same properties as Bitcoin. But nobody would accept LemurCoins as payment for any goods or services. What is the difference between them? The only difference is that some people will accept Bitcoins which means other people will accept them which means other people will accept them. But nobody will accept LemurCoins, which means nobody will accept them, which means nobody will accept them. And in fact lots of people really have done this and there are dozens or maybe hundreds of Bitcoin knockoffs, and none of them are worth anything.

Bitcoins don't even have the property of a key good that can be used as money, because there's literally no value to a Bitcoin except it's exchange value. Of course this is exactly the same position as the US dollar and the Euro. But those currencies have a key difference between LemurCoin and Bitcoin, in that they're backed by serious governments, whereas Bitcoin is backed by a small group of enthusiasts/speculators, and LemurCoin is backed only by me.

It seems to me that cryptocurrencies might have a future as unforgeable tokens for real goods and services. That is, a company might issue electronic tokens exchangable for a coffee drink, and you could be sure that the token was genuine by the above mathematics, and that coffee drink token could be exchanged for other goods and services as if it were a currency, as a key good. Same thing with game currencies, like gold in World of Warcraft. Lots of internet scammers want to be paid in iTunes gift cards. But there you're trusting that the company that issued the tokens will honor the tokens when the time comes. The fact that you can mathematically prove that you have a unique coffee token doesn't mean a thing when the company can just say that the promotion ended on Tuesday.

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Old 07-12-2017, 12:44 PM
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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.
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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.
The guarantee is that it would really screw up the American government if it did something stupid with the value of a dollar.

Yes, the dollar fluctuates in value. But not unreasonably so. (The fluctuation rate of the bitcoin is more than ten times higher than the dollar's) And the dollar has a record of holding its value for over a hundred and fifty years. That means people can accept dollars in the reasonable belief that they will still be valuable in ten years. Can you say that you're certain bitcoins will still exist and have value in 2027?
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Old 07-12-2017, 12:54 PM
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Bitcoin is backed by the reputation of pure mathematics.
That is absolute nonsense.

If bitcoins collapse in value, what am I supposed to do? File a lawsuit against pure mathematics? Put a lien on its assets? March outside the mathematics embassy and call for a boycott of mathematical goods? Threaten to break mathematic's knees?
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Old 07-12-2017, 04:14 PM
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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.
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Old 07-12-2017, 05:46 PM
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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).
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Old 07-12-2017, 06:55 PM
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The guarantee is that it would really screw up the American government if it did something stupid with the value of a dollar.

Yes, the dollar fluctuates in value. But not unreasonably so. (The fluctuation rate of the bitcoin is more than ten times higher than the dollar's) And the dollar has a record of holding its value for over a hundred and fifty years. That means people can accept dollars in the reasonable belief that they will still be valuable in ten years. Can you say that you're certain bitcoins will still exist and have value in 2027?
Don't you think it's a little unfair to compare bitcoin to the most stable national currency in the history of the world, instead of the typical or "average" national currency? It's like trying to compare the Best Picture of 1960 to whatever movie happens to come out first in 2018. Of course the historical best example of one is going to beat the first ever attempt of the other.

Except it's not even doing that, by some measurements. The US dollar is in a particularly notable period of historic stability, with historically low inflation and even a tiny bit of deflation from one month to another, in the past 10 years or so. Historically, even this paradigm example of a perfect national currency has varied and fluctuated wildly. Here is an interesting site where you can see the wild inflation/deflation rate in the USA going all the way back before the revolution.

Crypto currency is not guaranteed by any particular power or might of arms. It's guaranteed only by the strength of its design. If bitcoin or any other crypto currency continues to be provably impossible to counterfeit, immune to political whim, and otherwise impossible to manipulate through deliberate inflation or otherwise, and people became actually convinced of all of the above, there's no reason why America's guarantee on the dollar would make the dollar more desirable. After all, the only thing America is guaranteeing is exactly these same things, but just not as good.
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Old 07-12-2017, 07:14 PM
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This is not true in any real sense.
I'm pretty sure it is.
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The math give you the confidence that the transactions cannot be easily corrupted. However with the bit coin mining pools consolidating it gets harder to say that you won't get over half the miners (transaction verifiers) controlled by one entity.
But that's just another mathematical property of the algorithm. A known mathematical property, just as it's known that the encryption is important.

Just as with transaction encryption security, which could potentially be exploited with some unexpected leap in computing power, 50% transaction verifiers is another potential exploit. But that's just another way of saying, the other side of the coin, that the extreme apparent difficulties in breaching that barrier is yet another mathematical wall inside the code against tampering that allows the system work, at least for the time being. 50% is quite large number. That's not a guarantee of continued success (nor is the encryption) but it does happen to be another piece of mathematical logic backing the security of the system while simultaneously allowing it to function, and in which users obviously do have at least some small degree of confidence. It's not like government-backed currencies are guaranteed either, but nevertheless it's reasonable to have confidence in them because of the nature of their use and history and backing.
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Originally Posted by gazpacho View Post
There are other crypto currencies that have just as good math behind them but they are not used at all.
This is absolutely true, but not related to what I was trying to say.

More on this immediately below.



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Originally Posted by Lemur866 View Post
I don't believe this is correct. Sure, the mathematics ensures that Bitcoins can't be "forged", and you can be sure that if you pay a Bitcoin or get paid a Bitcoin, it's an actual Bitcoin. And the mathematics ensures that Bitcoins can't be created by fiat, and there's only a limited supply of them.

That doesn't mean that actual Bitcoin has any value.

The real answer is that the value of Bitcoin is backed by the community of people who will accept Bitcoins as payment. If those people do that, then a Bitcoin has value. If they don't, then the Bitcoin has no value.
It's not a comprehensive answer for why Bitcoin has value. But the question I was responding to, specifically, is what "backs" Bitcoin's value.

I wasn't giving a sufficient condition for Bitcoin's value that would explain, sufficiently unto itself, why people value ownership of these particular electronic digits on computers. I was giving a necessary condition, and moreover, what I believe to be the single most notable and obvious necessary condition. It is necessary that people have some confidence in the mathematical underpinnings of the system. Clearly that is an absolute requirement. (That's what a necessary condition is, after all.) If confidence in the mathematical security did not exist, no one would value Bitcoin. The value would collapse. If any exploits became generally known -- either through a new insight into the mathematics or even after-the-fact in the aftermath of mass theft -- that would also collapse the value of the currency.

That seems quite clearly, at least to me, what "backing" a currency is all about. A necessary condition, without which it would fail. It's not a list of each and every reason why it has value, including sufficient conditions. You're giving a demand-based argument for Bitcoin's value, and that argument (which is also gazpacho's point) is completely and totally correct. But even that demand-based argument is built on top of the necessary condition I already listed.

Nobody would buy either Lemurcoin OR Bitcoin without some measure of confidence in the mathematical underpinnings of the system. Obviously Bitcoin has other things going for it, too, most notably that it was first. But I would again argue that it wouldn't have been "first" at all without fulfilling that necessary condition: confidence in the mathematical underpinnings of the algorithm. It is trust in that mathematics that is the bedrock necessary condition on which everything else is built. In my opinion, anyway.




This gets us into the more semantic territory of what it means for a currency to be "backed". What do we mean when a currency is backed by gold? It means that the institution issuing the currency has made a promise to convert the paper into gold on demand. Fiat currencies don't have that. So what "backs" a fiat currency?

We're already getting more metaphorical here if we're not talking about direct convertibility. But it seems fair to say that the underlying stability and trustworthiness of the institution that issued the currency provides the (now metaphorical) "backing" for that currency.

In my own experience, this is how we normally talk about fiat currencies. What are they backed by? We generally say the trustworthiness of their governments. Not the demand for the currency among the public. Naturally, that demand is also necessary for the currency to have value, but when we talk about what "backs" fiat currency, we're always talking about the stability of the institution that issued it. Maybe I'm wrong about how people speak about fiat currency backing. If there are any exceptions to that in the popular press, I'd be happy to see them. But I'd personally be inclined to say that what backs the US dollar is the stability of the US government, and I don't think I'm the only one in this thread saying similar things.

So what is the relevant parallel institution, in the case of Bitcoin? The relevant institution here is the human mathematical discoveries which were used to provide some security to the transactions, just as government control over central bank computers and printing presses is the institution that secures fiat currency.

That security isn't sufficient by itself to give Bitcoin value. But it's also not sufficient to give any real-world currencies value either. It is, however, necessary for that security to exist for there to be any demand in the first place.

Obviously I wouldn't say that there is anything "factually" wrong with saying that Bitcoin is backed by the demand that people have for it. That just seems, in my own experience, contrary to how we generally use the term backing when referring to fiat currencies. Maybe I'm wrong about that, but I don't think so right now.





Quote:
Originally Posted by Little Nemo View Post
That is absolute nonsense.
Nooooooope.
Quote:
Originally Posted by Little Nemo View Post
If bitcoins collapse in value, what am I supposed to do? File a lawsuit against pure mathematics? Put a lien on its assets? March outside the mathematics embassy and call for a boycott of mathematical goods? Threaten to break mathematic's knees?
What does this have to do with anything?

Currencies that have been backed by governments have collapsed in value many, many, many times in the past. What would you do in those cases? What would you do if you were living in Weimar Germany in the early 1920s and had to crate around a wheelbarrow to carry millions of marks around? You could file a suit against the government just as easily as you could file a suit against mathematics. It would have been totally irrelevant. Your money would still be worthless. You could march outside the Reichsbank just as easily as you could march outside a major Bitcoin mining server. It would have been totally irrelevant. Your money would still be worthless. You could threaten to break a banker's knees just as easily as you could threaten to break a local computer scientist's knees. It would have been totally irrelevant. Your money would still be worthless. You're stuck with the wheelbarrows of cash in every one of those cases. Put a lien on the chancellor's house? Pffft.

If your own peculiar definition of what it means for a currency to have backing is "I know exactly what buildings I could throw molotov cocktails into if the currency lost all its value", then no, Bitcoin isn't backed.

But that's an absurd definition.

I don't quite agree with gazpacho's or Lemur866's argument that demand is what is backing the currency. Seems to me contrary to how we generally speak about fiat currencies. But at least their arguments actually make sense.

Last edited by Hellestal; 07-12-2017 at 07:15 PM.
  #38  
Old 07-12-2017, 07:25 PM
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when everything has gone south, we'd most likely be bartering and trading essential goods, not cryptocurrencies like so many geek fantasies.
You completely miss my point. Sure bitcoin can go south, and in my view it's far more likely that bitcoin will go south than most traditionally stable national currencies. The point is, the difference is or is largely quantitative. Everything can go south.

The only proposition that I disagree with is the proposition that traditional currencies have, in the real world, some sort of bedrock value that cryptocurrencies do not. People are very quick to point out that cryptocurrencies are castles built on thin air, but in my view we are all living in castles built on (at best) somewhat solidified air.
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Old 07-12-2017, 07:37 PM
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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?
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Old 07-12-2017, 07:38 PM
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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.
  #41  
Old 07-13-2017, 12:22 AM
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You completely miss my point. Sure bitcoin can go south, and in my view it's far more likely that bitcoin will go south than most traditionally stable national currencies. The point is, the difference is or is largely quantitative. Everything can go south.

The only proposition that I disagree with is the proposition that traditional currencies have, in the real world, some sort of bedrock value that cryptocurrencies do not. People are very quick to point out that cryptocurrencies are castles built on thin air, but in my view we are all living in castles built on (at best) somewhat solidified air.
I disagree. So long as governments have to accept their currency as taxes, the currency is exchangeable for something concrete: FREEDOM. And I don't mean freedom in an abstract sense, but rather literally freedom from being sent to jail for not paying your taxes. Every dollar, every cent is a fraction of a get-out-of-jail-free card, and to me, that's as concrete as you get - more concrete even than gold, which, let's face it, is really only good for making bling.
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Old 07-13-2017, 03:09 AM
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You can go to jail for debt in your country? I don't think so.
  #43  
Old 07-13-2017, 03:40 AM
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You can go to jail for debt in your country? I don't think so.
You can't go to prison in yours for not paying due taxes? Al Capone's lawyers would be surprised to hear that.
  #44  
Old 07-13-2017, 03:49 AM
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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.
  #45  
Old 07-13-2017, 03:55 AM
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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.
  #46  
Old 07-13-2017, 04:13 AM
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The difference between a national currency and and a cryptocurrency is that a national currency
  • Is backed by the laws, national institutions, and social structure of a nation.
  • Is controlled by the government of a nation.
  • Is used to pay government employees, to receive taxes, duties, and fines, and for all financial transactions by individuals or companies with the national government.
  • Is used by many millions, or hundreds of millions, of people for all the transactions of their daily lives - billions of transactions of every type every day.
  • Is accepted by any and every business and individual.
  • Is used for government bonds, and transactions between nations.
A cryptocurrency, or a commodity, or any arbitrary means of exchange is none of these things - and can never be - because it is not backed by a whole society.

A currency which is not backed by a national government, and by the laws and institutions of a nation, is just a private, unenforceable arrangement between individuals. It can never be used for financial transactions within the legally established social framework of a nation.
  #47  
Old 07-13-2017, 04:16 AM
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....It can never be used for financial transactions within the legally established social framework of a nation.
???

The bitcoins are used for the financial transactions, fully legal. This is a weird and nonsense statement.
  #48  
Old 07-13-2017, 04:19 AM
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You can't go to prison in yours for not paying due taxes? Al Capone's lawyers would be surprised to hear that.
Al Capone went to prison for lying about his income, not for failing to pay taxes.

Last edited by Lord Feldon; 07-13-2017 at 04:21 AM.
  #49  
Old 07-13-2017, 04:23 AM
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???

The bitcoins are used for the financial transactions, fully legal. This is a weird and nonsense statement.
Sure, it's not illegal, but that's not the same thing at all. Try to pay your taxes or a traffic fine with bitcoins and see what happens.
  #50  
Old 07-13-2017, 04:32 AM
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You can't go to prison in yours for not paying due taxes? Al Capone's lawyers would be surprised to hear that.
What Lord Feldon said. If you are simply unable to pay taxes, you are made bankrupt. Ain't no such thing as debtor's prison in any first world countries of which I am aware.
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