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.
I dunno, but it sounds interesting enough to bump the Thread.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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?
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.
when everything has gone south, we’d most likely be bartering and trading essential goods, not cryptocurrencies like so many geek fantasies.
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?
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.
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.
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.
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.
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.
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?