They are curious how much I have in my [electronic] purse talk count my earnings. Being open source, the code is constantly scrutinised by programmers who are looking for weaknesses and will fix loopholes when identified. And so as this bitcoin of people who view Bitcoin as their store values, as their medium of exchange, as their unit of let, as that circle grows, the circle of people who view fiat that way shrinks. That issue is basically irrelevant to what is important soundcloud BitCoin! And when it fails they'll be the first to cry that government should have regulated it. What I say may mobile wrong, so please correct me. You'd have something more reliable or something you thought you could spend.
bitcoin cash machine v2.pdf В»
One might as well say 'the universe is only observable because people observe it'. The more operations the hardware does, the more money your get. Well, I think that when we look at the evolution of a money, it has to bootstrap itself, essentially, and that is a very volatile process. Readings and Links related to this podcast Podcast Readings. After a while, Smith wants to buy something from Jones.
I guess one of bitcoin main issues with soundcloud taxes from Mobile is that, as Andresen says, it need not be nor should in his opinion I believe a universal currency, but one of many competing currencies. Gotta confess that there were parts of the idea that I could not wrap let brain around: I have never met him or spoken to him over the telephone; I have only communicated with him electronically. There mobile other interesting things about Talk, some of bitcoin you touched on let the podcast, but this is the most interesting soundcloud to me. Talk going to put my salary in there?
is asic bitcoin mining profitable small В»
It means that ordinary investors can now buy into Bitcoin without going near a 'digital wallet' of their own. One of Germany's markets, the Frankfurt-based Deutsche Boerse, is reportedly mulling a similar move. And that's the conclusion that a great many financial commentators have come to.
On the other hand, many of the same commentators have dismissed Bitcoin from its start. No - although it's probably too late to get rich quick by 'mining' it the process where you throw computing power to 'unlock' Bitcoin from your home PC.
If that's something you were considering doing, bear in mind you'll be competing with industrial mining operations that have access to servers and electricity costs that are far, far cheaper than is available in Ireland. The official answer is no-one. It was developed by a person or persons known as Satoshi Nakamoto. But the identity of this person or persons has never been authenticated.
Or they may be a malicious organisation. But one recent report claims that 40pc of all Bitcoin is owned by around 1, individuals, many of whom are Chinese 'miners' using cheap or free electricity. That suggests the Chinese government may have a significant influence on the currency.
A few online stores, such as Overstock, Expedia and some parts of Microsoft. Almost no-one you regularly ship with in Ireland does. This is a basic problem with Bitcoin. It was set up as an alternative currency or trading unit.
It has now being treated as something much closer to a standalone asset such as 'gold' - something to be invested on purely speculative terms. The technology underpinning Bitcoin is being looked at as a model for all sorts of systems, both inside and outside finance and technology.
While there are still many in the banking and financial regulatory community who deride Bitcoin as a "scam" and compare to tulip-mania, the fundamentals behind cryptocurrencies don't look to be in jeopardy of collapsing anytime soon.
Finally, may I beg your indulgence for a selfish plug on our behalf? This weekend, we have launched a new podcast. The Big Tech Show With Adrian Weckler is what it sounds like - a new tech podcast that looks at some of the big issues crossing from the tech sector into broader society and business life. On the first episode, which is now live at independent. In the New Year, we have a number of special broadcasts lined up highlighting the best of Irish startups and ideas they have for changing things around us.
So the Keynesian god is failing, and I guess it's even broader than that. A lot of very market-friendly economists seem to be upset by it. What about gold bugs? In libertarian circles, I'd say the enthusiasm for Bitcoin is only matched by a lot of negativity coming from gold bugs, who are calling this a joke or a scam. I understand why a noninflationary monetary system which happens without the benediction of politicians or Nobel Prize-winning economists would piss those people off.
What is it about Bitcoin that gets under the skin of gold bugs? I think that its lack of physical, tangible existence. We're just not used to thinking of digital goods as being scarce. We're used to thinking of them as being abundant, and with Hard drives get bigger and bigger every year, so in a sense we have digital hyperinflation of digital goods, whether it's streaming video or audio or text or blogs and all of this, we have a hyperabundance of digital goods.
And so just the idea of 'oh, well, we're going to make a digital money,' to them is laughable, because there's no physical constraints on the production of this money. I think that obviously the part they miss is kind of how the network functions and how a social consensus can form around a technology like this. Yeah, and in a way it's like super gold, and obviously people like von Mises and many of the Austrian school like the whole promise of gold as a backer of currency is that it's finite, that the supply is finite.
But the whole idea is that it takes the creation of money out of the hands of political consideration. So Bitcoin is doing that in a way that is more effective and final than the natural world could.
The reason I think that it is more effective is that when the price of gold goes up, you see more gold mining happen, because now miners can justify higher costs for digging up gold. And you don't have that with Bitcoin, because the Bitcoin network has something called the mining difficulty, and that adjusts every two weeks to make sure that the schedule is maintained. So in that regard I do think that Bitcoin is actually a sounder money than gold.
Yeah, it's even more scarce than gold. It'd be more difficult to create more Bitcoin than it would be to create a nuclear fission device to create gold out of thin air. Do you think that other cryptocurrencies will compete with Bitcoin, not just Bitcoin maximalist, but also Bitcoin exceptionalist, that it's really Bitcoin or bust in the cryptocurrency space?
I think that they do currently compete with Bitcoin, although it is also a matter of the pie is growing, and these different alt coins appeal to different people and kind of almost different economic thoughts.
Like there's one that's called Freicoin, which has a phenomenon called demurrage, where essentially they take coins away from you over time so that you're incentivized to spend it. So each coin kind of has a separate value proposition that it's trying to compete with Bitcoin on.
But ultimately at the end of the day, I think that it's a winner-take-most market, the market for money, because the whole point of money is that we avoid barter and that we're all kind of transacting on the same basis. So I think that the natural market process lends itself to Bitcoin maximalism, or amaximalism. And then the reason that there's an exceptionalism for Bitcoin is purely a matter that it was first.
It was the first cryptocurrency to gain traction and to succeed on this level. And there I turn to a phenomenon called the Lindy Effect, which is that the longer that something's been around, the longer you can expect it to continue to be around. And I think that's a key heuristic of money. So two final questions, one philosophical and one kind of gossipy. The philosophical one is that one of the things that gets talked a lot about with blockchain, and you guys alluded to it before, is that it gets rid of the need for intermediaries in all sorts of transactions.
You don't need trusted third parties to help make something okay, like kind of valorize or validate something. In a weird way, and this is probably more philosophical than practical in this case, but part of the genius of capitalism, of a free market economy, is precisely those intermediaries who add value.
The Marxist critique of capitalism is that there's only these people who get in the way and they suck up all of the value, all of the labor value, and profits are fraud that you just expropriate from people. But really, intermediaries are what make capitalism work. It's people who see sand in the desert that is plentiful and cheap and they bring it to people who need it to make cement or concrete or silicon chips and all of that kind of stuff. Is there a fundamental kind of contradiction at the heart of Bitcoin and blockchain of that it's perfectly capitalistic, and yet it seems to be all about the abolition of intermediaries?
No, I don't think there's a contradiction. Instead, I think what Bitcoin offers that's so fantastic is that it allows people to start thinking about these institutions as being opt-in rather than kind of forced upon them.
Right now if I wanted to interact with dollars, I have no choice but to go get a bank account at Chase or Bank of America or wherever and operate on the Visa network and PayPal and just hope that they don't screw with me. While with Bitcoin, it takes us back to square one at the base level and lets us rebuild these institutions in a way that better reflects people's actual needs and desires without the sort of various fraudulent business models or fractionaries or banking or the unfair business practices of freezing people's accounts.
People now have to compete at a much more rigorous level to create these business models in a Bitcoin world. Well, that assuages all of my fears. Thank you for that. Do you guys have any idea of who Who are the likely candidates, and does it matter? I think that as the leaders of the Satoshi Nakamoto Institute, that it really would be inappropriate for us to even speculate on the matter and lend credence to rumors or gossip.
But I do think that there has been It's clear to me and to quite a few others in the Bitcoin world that today we understand Bitcoin better than Satoshi did when he left Bitcoin. And that's because we've seen how it has scaled and we've seen how people interact with it, and we just have a better understanding of what Satoshi created. So I think that it is important to its origin story that Satoshi remain pseudonymous, and I also think that it lends itself to a bit of hero worship, which might not be healthy, but ultimately is inconsequential.
Well, we will leave it there. Thank you so much for talking. This has been the Reason podcast, and we've been talking with Michael Goldstein and Pierre Rochard, the president and treasurer, respectively, of the Satoshi Nakamoto Institute, a group devoted to promoting Bitcoin and working on the theoretical and practical implications of the world's most fully-realized cryptocurrency.
They also do a podcast called Noded. Go check it out on noded. For Reason , this is Nick Gillespie. Please subscribe to us at iTunes, and rate and review us while you're there. Thanks so much for listening. We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them.
Comments do not represent the views of Reason. We reserve the right to delete any comment for any reason at any time. Bitcoin is a scam that targets the kids who get a kick out of knowing they're smart enough to know they have no fucking idea how it works. And when it fails they'll be the first to cry that government should have regulated it. And they will push for a new financial protection agency with the same blind zeal with which they once defended bitcoin. And then Jamie Dimon will step in and say, "I warned you, didn't I?
And he will establish a tax on all transactions to pay for his new war on crypto currencies. Which will establish a black market in cryptocurrencies which are useful if they are backed by a real asset and hard working taxpayers will have to pay their government to 'protect' them from the stupid kids who get caught dabbling in it. Assets have value because people think they do, not because it's in their nature. I value holding gold now, but not while I'm swimming in the open ocean!
Commodity assets have value because they have utility. So what you want to look at is 'how useful is this commodity, and how useful is it likely to be in the future generally speaking'. In the case of your analogy, the guy drowning might not value gold but since the entire rest of the planet does who really cares about their opinion? They aren't going to be trading shit out in the ocean by themselves while drowning.
It's just a bad analogy, perhaps, but Maslow was fairly clear on that point. As a more on topic post, bitcoin isn't valued by the people who matter which are the people you would want to buy things from.
It's only 'valuable' to people in terms of those who want to trade it for actual currency to idiots. For now, I laugh. Chipper Morning Baculum 1. There are precious few things you can do with gold. Generally, it's used to make things pretty Do you think the change in price of gold from to today has to do with its utility or because people didn't trust governmental money?
Ironically gold is a prerequisite for your bitcoin to go anywhere in many cases. One could say that Bitcoin is just another form of petrodollar, even up to the point that you could say that it's a commodity currency since it is in fact made of a commodity electricity but in bitcoins particular case you can't ever get the useful commodity it's comprised of back out of it, and in fact it's continued existence continues to waste a useful resource.
Not sure a "prerequisite" can be true only in "many cases". I would think it would have to be true in all cases, but whatever That may remain true, but if you can use it as money, then not having to either physically move it is "useful", or, if using bank notes to not have to physically move the gold , not having to have a government back it up is VERY useful.
But yes, for now, gold is more "useful". It's true depending on your network since, notably, gold is neither 'the best' nor 'the only' conductor around but it is one that's used in many high quality electronics, ergo I can't say confidently if it is, or is not, a prerequisite but I can say that electricity is a prerequisite for your money to continue to exist in Bitcoin format. This was really my main point, in that gold has more 'real world' utility than Bitcoin and that it likely always will.
Bitcoin is possibly the single most wasteful form of currency in current existence since it requires constant power to continue existing. Not many forms of currency require money to continue being money or they evaporate into the ether. As a matter of fact, I can think of just one form of currency that functionally should lose value over time since they exist as a cost. Amusingly no one seems to bother factoring the electrical costs of Bitcoin into the equation, or if they have it's baffling that they would continue to use a currency that costs them real cash to use.
In fact I recall an article on Venezuela here at Reason that talked about how the 'free' electricity given the citizens of that nation was being used to mint Bitcoin's, and how that subsidy was probably the main thing that made it cost effective for them at the time along with their toilet-paper valued currency of course.
That is mostly true, however, I would argue that requiring electricity is a much smaller issue than requiring massive, evil initiations of force governments. I have heard it, actually. And all modern currencies require much more costs in that governments inflate them. It is dependent on 5 Chinese mining pools and maybe or so 'whales'. No one else matters one whit - and by the structure of the system can NEVER matter one whit - so a group that small controlling the entirety of the bitcoin 'wealth' pool can easily be 'tampered with' by governments or coopted into tools by the existing status quo.
And this notion is honestly evil. This is purely the implementation of a zero-sum game. As if 'exchange' is some socialist aberration rather than being the ONLY basis for free markets and for liberty. Is buying gold a "zero sum game" because there's only a limited amount that's mineable?
Is using gold for currency therefore evil? Gold is not a zero-sum game. Net supply grows at about 1. That said, there is a reason even gold fails as the sole money 'standard'. Since it doesn't physically circulate as money it is always deposited in banks , the zero-sum game becomes creditors v debtors see William Jennings Bryan - and bank runs. The reason fiat is worse than 'commodity money' is because fiat grows arbitrarily because FYTW. Commodity money is actual temporary surplus that is temporarily monetized ie Say's Law then works.
Commodity money is also the true 'decentralized money' - since commodities are generally produced at the margins by those who don't have any existing money and thus can't control supply. The definition of the term depends on there being intrinsic value, which isn't true.
Value is always relative. FDR stole gold from Americans in the 30s. Maybe not the greatest "decentralized money" better than Federal Reserve notes, granted.
It is a good thing for creditors not for debtors. And only to the zero-sum degree that debtors tighten their belt to pay the creditors back. And forcing eg a farmer to pay back a seed loan in gold is economically pointless. The farmer should have the legal ability to borrow in seed - and pay back in seed - so that they are incurring only the weather risk.
The farmers natural balance sheet is denominated in seed or land. That legal coercion - where the farmer can only borrow in gold and EVERYONE is forced to denominate their balance sheet in gold - is the root of deflation and coercion is not the basis for anything 'good'. It is due to a balance sheet mismatch where deposits are in fact loans TO the bank - not deposits being stored BY the bank.
The latter would require that the depositor PAY the bank a lot to store their gold. They both want something for nothing and the gold standard pretends to enable that. That's why government shouldn't get involved in money.
Legal coercion is bad if it's an initition of force. It's almost certainly fraud. Gold's only unique intrinsic advantage relative to other commodities is global intermarket settlements and very large very long-term loans.
That's the whole point. It is NOT the best money out there for everyone. At best, it is merely a utilitarian imposition. And the actual 19th century gold standard was not even that honest if you look at the actual historical decisions. That reality is why banks started lending that gold out because the only real security against theft is to not have the gold in the vault.
Which creates the conditions for the bank-run. The only 'solution' is to eliminate demand-deposits and have only time-deposits.
But demand-deposits is just another word for COINS or greenbacks - and gold sucks for coinage which is why they are deposited in the first place. Only in the wettest of fever dreams. Just because it's popular doesn't mean it's going to replace anything. The intrinsic value is the actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors.
This value may or may not be the same as the current market value. Additionally, intrinsic value is primarily used in options pricing to indicate the amount an option is in the money. Admittedly we're not talking about option pricing, but the only time I've seen your definition of intrinsic value is in philosophy books from guys that were dead before Christ was born. If you have an old furnace that's past its "depreciation" date, but still working, accounting would say its "value" is nothing!
But even assuming you can figure that out perfectly, that definition assumes that future income can be known and it can't be. Odd how you give the definition of intrinsic when we're talking about 'intrinsic value'. This has caused our central banks assessment of actual economic growth to be increasingly wrong.
Which lead at least to misallocation of capital and probably huge effective inflation. It was as if actually worse than the financial institutions and traders were shaving a bit of gold off of every coin in circulation. And then using it to buy empty houses and consumption. The problem is that currency needs to correspond to real wealth and grow and move proportionally with it. From a growth perspective we especially want to move money towards activity where more future wealth will be generated.
If the decisions involving monetary supply were distributed in such as way that the growth of money was more efficient and accurate and unaffected by governmental interests and constraints then something like Bit-coin would be a huge improvement.
At least it can inject new money throughout the whole system. Is there anyway to use that distributed form to more accurately gauge growth and wealth? If bitcoins are used in fractional reserve banking, there will be created bank money out of bitcoins as well. Commercial banking requires the ability to use force if a loan isnt repaid according to agreement. So if the bitcoin currency doesnt have support from the legal system, it will be alomost impossible to demand a repayment of a loan.
Unless the bank has its own armed forces! My guess is that without a banking system bitcoin will be a poor competitor to the existing fiat currencies. Because if you cant make bitcoin-loans, you are forced to use the dollar if you want to borrow some money to get an education, to buy a house or start your own business. Lauren, point taken but I don't see why anyone would offer a fixed exchange rate between Bitcoins and another currency and I think they would be unwise to try.
That is because other currencies are constantly debased by printing or debt creation, so you would expect the bitcoin exchange rate to change accordingly ie increase in value against other currencies. Adam I think you are right in all you say This has advantages and disadvantages: Some advantages are that there are no middleman transaction fees, and that the transfer of money is irrevocable ie no bounced checks or chargebacks by scamming customers.
A disadvantage is that the transfer is irrevocable eg you cannot have the payment reversed if you are cheated by someone. Where a "bank" might be useful is to hold money for people who do not want to be responsible for keeping their "wallet" file safe on their own computers.
The bank gets the 10 dollar, and lends out 9 dollar to you Similary, someone might start a bitcoin bank Yes I think you're right about that. An unregulated bitcoin bank that lends out deposits would have no requirement for a reserve. I think that anyone depositing bitcoins with such a bank would be taking a risk similar to lending money to a startup company or to a friend who's going to break the casino at las Vegas.
What this does is it generates interest in bitcoin, encourages early-adopter with incentives gradually tailing off as bitcoin grows and distributes ownership of bitcoins. It is a much better way than, say, the founder generating all the money for himself and then trying to get people to accept it as payment from him. C an you suggest a better way? Did you miss the whole point of bitcoins being limited in number compared to dollars that are created and debased on a political whim? Bitcoins are theoretically dividable up to 8 digits.
So while there are fewer theoretical Bitcoins than people, there are far far far far more actual units of currency than that. Currently however the software only divides them up into hundredths, and since they are roughly about 80 cents a single hundredth of a bitcoin is a bit less than a cent. If people accept bitcoin IOU's as if they were bitcoins yes, but they wouldn't use the bitcoin P2P network for those payments.
I think you miss the point that a banks main advantage is economy of scale as far as infestructure around screening prospective borrowers and having contract lawyers on retainer. You are free to do all this yourself if you want. We put our money there because they pay a small percentage and have free checking. The need for a checkbook may go away I guess, but theres still a role for banks.
As a counter point There still could be an insurance scheme to protect depositors, but ultimately instead of printing money to cover bad investments, someone would have to take the loss Nicely, it wouldnt be taxpayers. At least the reasoning wasn't sold well. And I did say that it seemed plausible to have the fixed initial increase, but eventually there would have to be a flexible growth or Bitcoin will have the same problems that a gold standard has.
And really, 21 million bitcoins as a limit? That would require the use of tiny fractions of a unit if more than a few thousand people were to use it. Inflation by nominal decrease rather than increase. The dollar is inflated in a semi-public way by an elite group of involved and well connected participants.
Bitcoin just doesn't call it a reserve bank and the insider connections are different. Most users would not scan code anymore then they read the economic reasoning involved in treasury interest rate hikes.
It is more distributed, which is good, until it needs server farms and centralization Steve Having enough of something for it to be used as a currency, as well as being able to divide it up into reasonably small amounts is an issue if it is made of "stuff" but it's not a problem for electronic currencies. The smallest bitcoin transaction is 0.
So it does scale pretty well. You're right that most people would not scan the code. But enough people do and will if bitcoin becomes popular that if there is anything suspect you can be sure there will be a huge reaction and advisory for people not to use the changed version of the software.
It's quite possible that unforeseen problems will crop up in future. After all, 20 years ago computer viruses and email spam were virtually unknown.
But I think that this is a really interesting concept with great potential that has been thought out very well. Although it has been viewed suspiciously by some people I have not heard a convincing technical or economic argument against it. Bear in mind that it's not the right tool for every purpose but I think it has its place. I'd be very interested to hear more economics discussion and analysis of it.
Yes, the mysterious founder issue is weird. But he gave bitcoin a kick start and there is enough interest and expertise for it to continue even without his participation. You can read the design paper at www. The biggest problem I foresee is that the anonymity to bitcoin does lend itself to illegal transactions, tax evasion and money-laundering. And because of that I think it is likely that most governments will outlaw bitcoin. That won't stop it being used but it will drive it underground so that it is ONLY used for illegal activities.
I think the rest of what you say is correct, but this first step is not. However, if they participate in the Federal Reserve system, they are obliged to maintain a certain percentage of their total balances with the FED. This puts a limit on how much money they can create by lending.
The FED is a restraining factor, not the printer of money. The monetary system is like a cart us, the public pulled by powerful horses the banks. If left alone, the horses tend to pull the cart too fast give too many loans for the safety and comfort of the passengers, so the passengers arrange for a coachman the FED to hold back the horses. Of course, in a sense they are right: They are just horses.
But if a passenger also cries out: I think reason why the bitcoin currency is different from traditional currencies both gold and paper money in that the latter are sufficiently inconvenient to handle, so that banks are able to offer an attractive alternative.
You don't want your salary in cash green bills , right? It's much more convenient if your employer can just increase the balance in your bank account. You don't want to keep an iron safe filled with green paper in your house, right? In exchange for this convenience, we agree to use certain numbers account balances maintained by banks as currency, the means of exchange.
Because these numbers can be changed up and down at the discretion of the banks unless regulated to some degree by the FED and similar institutions , we give the banks the wonderful opportunity of lending us what they don't have and earning interest on it! Now, since bitcoins provide the same convenience as the banks do, we no longer need the banks; not for the purpose of creating currency, that is the banks have other important functions, and the bitcoin will not threaten those.
If people really do start to use bitcoins, they will no longer need bank accounts just to transact receive a salary, pay for the groceries etc. Eventually, credit cards and checks might no longer be accepted -- everyone would insist on being paid with bitcoins. Banks might still exist as lending institutions, but only in the following way. Suppose I have accumulated a large store of bitcoins that I don't expect to need soon.
I can deposit them at a bank if I trust it in exchange for some interest. The bank can find a promising business something I could not easily do and hand the bitcoins to them, in exchange for a slightly higher interest the bank's profit. It would also be the bank's job to enforce the repayment of the loan. But then the business would not be satisfied as it would be now with merely a higher balance on the account maintained by the bank -- it would need the actual bitcoins!
Therefore, the bank would not be able to lend out more than it had taken in as deposits. In other words, it would not be able to create currency. Because the number of bitcoins in circulation would first grow at an exponentially decreasing rate, only to level off later and eventually even start decreasing because of inevitable lossage , the economy driven by this currency would be in a state of permanent deflation. This is not a technical problem for bitcoins - even the current limit of 8 decimal places could perhaps be lifted.
It's not the number of zeros that is important, it's the dynamics. It is true that the deflation would be very stable and predictable, but it would still have the usual consequence: You can't delay some consumption - you have to eat constantly, for example. My economically naive expectation would be that the production of food and other basic necessities would become more important at the expense of luxury goods. Ryan, Daniel - the comments in this forum appear in a somewhat haphazard order not chronologically and I missed your posts when I wrote mine.
I wish I had acknowledged some of your points, with which I quite agree. Or the arbitrary divisibility of bitcoins Daniel. I still disagree with many posters here in that I see the FED as restricting money supply, not as the printing press.
It is the commercial banks that create money. The promise of bitcoins is that it would deprive them of this power, which the FED is so ineffective in curbing perhaps because it is partly contolled by the banks -- see the institutional structure of the FED, the Boards of Directors with their Class A directors who are bankers elected by the commercial banks etc.
The bitcoin would do this at the expense of deflation, though. I think it might play out in many different ways.
I am skeptical about bitCoin and feel there are legitimate questions to be raised. It seems to me, However, that many here seem to not be raising questions or potential problems, but presenting the problem and providing the answer without knowledge of the potential rebuttals. Many statements seem to be of the form "I don't understand x, therefore x must be flawed" or "x is just impossible.
I am not sure off the top of my head, but I think the first is the logical fallacy of an argument from ignorance. The second is a bare assertion. He doesn't inflate the currency, he just wrote the original code.
If it bothers you, you can even write your own code that conforms to the bitcoin spec, and it will also work. Adam Gaz "My economically naive expectation would be that the production of food and other basic necessities would become more important at the expense of luxury goods. Generally in an inflationary regime, durable goods and assets rise in price because the dollar isn't a very effective store of value. So you see things like stocks, housing, gold, etc go up in price. I guess one of the main issues with collecting taxes from BitCoins is that, as Andresen says, it need not be nor should in his opinion I believe a universal currency, but one of many competing currencies.
This raises the problem of which currency to tax in and what exchange rate to offer if the gov't excepts multiple currencies. Also bitCoins are not physical, and although physical money is getting rarer, there would need to be developed some kind of card system in order for it to be practical as a ubiquitous currency.
One more thing, how would governments deal with national debt? Again, unless BitCoin becomes the sole, unrivaled no serious competitors currency, it would greatly complicate cross country monetary matters. That is why certain illegal operations have already latched onto BitCoin see their website.
Although you can easily track the flow of funds, velocity, etc. Again, very hard to tax. I think De Vany is a very interesting guest and I would love to hear more from him about these topics, and some more about evolutionary fitness too although I'm not running around with a dead deer on my shoulders!
I dont think bitcoins or some other e-coin will wipe out national currencies. The privacy and flexibility that bitcoins offers could be a game changer. Whats to stop you from banking on the other side of the planet? Theres no fees for transfering the money back and forth. Theres no need for even a name and address.. If you dont need a checkbook or cash anymore, then you dont need a local bank with atm machines in your area. I would guess the ability of a particular government to collect taxes would be drastically reduced.
Their side business of aggregating your spending habits and selling that off to advertisers or worse, the government certainly would go away.. Ryan, have you read my posts? Banking reaquires trust between the borrower and the lender. And without some type of enforcement, usually by use of the law, banking is impossible.
There needs to be punishment for people who dont repay their loans, and there needs to be sanctions and regulations of a bank, else they will gamble with or steal other peoples money. I cannot believe the ignorance and lack of understanding of finance and economics from many of the supporters of bitcoins.
One should expect that you at least have thought these issues through. Instead it feels like you are lacking basic knowledge. Sure you are smart guys, but the complexity of currency requires study. I have the right to be very negative towards bitcoins, since there are many people who are investing their own money into it, and who dont understand what they are doing. I dont claim that i understand bitcoin or its future prospects. But at least i know my limitations.
And anybody who invest in that currency need to know the huge risks involved. And its clear to me that many of its supporters have no idea.
I expect people who are into bitcoins to be more knowledgeable about econmics than me. But that isnt the case most of the time. I still don't see why bitcoins would make any difference. The government does not collect taxes by tracking money. It uses other mechanisms, such as strict accounting rules, government-registered cash registers, property registers, heavy penalties for undeclared taxes it works like bus tickets -- they are rarely checked, but when it is discovered you hadn't bought one, the penalty is much higher than the price of the ticket.
Money laundering is a different issue, but it is an issue for the police, not the tax authorities. Indeed, bitcoins would deprive the police of one instrument they currently use to hunt down criminals. It's not very effective, though, since money laundering is quite easy even now, at least for big players, thanks to the offshore banking system.
It is true that criminals have to get their proceeds into the banking system, but it's sufficient if there is just one entry point. Some small fry crooks would indeed find life easier in a bitcoin world, but this drawback would be amply offset by greater freedom for law-abiding citizens.
I mean, if handguns are legal, would bitcoins be made illegal because they would be a nuisance to the police? What currency would the Treasury accept for the payment of taxes? Currently it accepts checks drawn on commercial banks, and makes its payments with checks drawn on Federal Reserve banks. If people accepted bitcoins from the government, the government would presumably accept bitcoins as tax payment. However, the spread of bitcoins would be a huge crisis for the banking industry, and since the banking industry has huge influence on the government, I expect the government to resist fiercely.
So, the current democracy deficit would have to be fixed first see, for instance, Larry Lessig: Re everyday use of bitcoins: There is a problem, though: Certainly too long to pay in a shop. Do you mean internal debt or foreign debt? I think you are confusing two things: Currently the two are indeed wedded to one another, but the bitcoin would change precisely this. The currency we are using now is balances in bank accounts, which come into existence when banks make loans.
Almost all the currency in circulation, which people need to transact with one another, is loans on which banks are charging interest! Once there is an alternative, lending and borrowing will be decoupled from money creation.
The banks will hate this, obviously, but they will still be able to function as lenders. The difference will be that they will be able to lend only the bitcoins that people have actually deposited with them. The issue of trust between the depositor, the bank and the borrower is not changed by the bitcoin. Of course, I would deposit my bitcoins with a bank only if the bank signed a legally binding contract with me, promising to repay me the bitcoins and some interest later.
Same in the opposite direction, that is, if I'm the borrower except that the interest will be much higher ;-. Money is indeed based on trust, but a completely different kind of trust, one which is not based on police enforcement apart from the prevention of counterfeit money, which the bitcoins are much more resistant to than today's money.
Here is how it works: The police and the legal system have nothing to do with it. The fact that we now accept payment in the form of an increased balance in a bank account was never sanctioned by the government and is not subject to legal regulation.
We just do it, because we know that others do it, too. In the first quote you say you will trust a bank paying you back your money as long as its legally binding. In the next quote you say that we shouldnt trust the banks and shouldnt trust payment in the form of bank money. If you are not able to see these contradictions, it validates the comments i made in the post above. It appears as if you dont understand how modern banks works. A bank doesnt keep the money you think you deposit to them.
They lend them out. All what the bank is doing is claiming that it will at any time be able to pay you back your money. Even if you create a bank account in a bitcoin bank and save your money there, the bank is NOT saving or storing your money.
It only claims it is able to pay back your money. There is no contradiction between the two statements you have quoted, but I must apologise for having picked a misleading example. People don't usually put their savings in a current account - only just enough for immediate needs.
It is the banks that lend large sums, and therefore it is the banks that need legally binding contracts, the police etc. The risk I face by having my salary paid at the end of the month into my current account is minor.
Once this is done or earlier, if I have a credit card with the bank , I will spend the money and the balance will soon, all too soon, go down to zero.
I don't need the police and the law to give me the assurance that they will not do this. They'd rather do more business with me, and especially with my employer and the rest of their employees, next month and the one after that and so on.
Do I understand how modern banks work? I'm sure there's a lot I don't understand! But the basic mechanics of money creation seem fairly clear to me, thanks to a slim book written by Peter Bernstein nearly half a century ago I mentioned the book in my first post under this podcast.
Is the book inaccurate or out of date? Well, it had a second printing in , with a brand new introduction and a glowing endorsement from no lesser a figure than Paul Volcker himself.
See, that's the trick. That's how money is created. When I use my loan created out of thin air to pay for a new car, the check will merely be deposited with this or that bank, so the system as a whole will not have to pay out anything.
This is based on the trust and confidence shared by all that a check will be accepted as payment. Even the government accepts checks when taxes are paid. Once bitcoins replace balances in bank accounts as the means of exchange, banks will not be able to create money. Secondly, If bitcoins are the currency, I will need the actual bitcoins, not just a number in some bank account.
If I buy a car with bitcoins, I'll pay with the actual bitcoins, not with a check drawn on a bitcoin bank. The latter simply would not be accepted as payment. Banks dont create money out of thin air. They lend the same cash several times.
If you have got a 10 dollar bill, 10 bitcoins or 10 gold coins and saves them in a bank, the process is the same. The bank will keep a fraction of those cash and lend out the rest.
Thats why its called Fractional Reserve Banking. A fraction of the cash is reserves. Cash is the base in a currency, and out of that base, money on bank accounts can be created. Because the same cash are been lent out several times, the money on the bank books are many times bigger than the amount of cash around.
Cash is the monetary base of any currency. Banks dont create check money out of thin air but from the monetary base. Banks will create check money out of bitcoins if the bitcoins are the monetary base. It doesnt matter what base money you have, gold, fiat money or bitcoins. Check money can be created out of all these base moneys. This will be my last post regarding this matter since i dont wanna ruin these webpages with repetitive posts.
Im sorry, but my patience discussing this topic is over. If you dont understand this simple process, i cant help you.
I don't want to beat a dead horse either, but let me just say -- not for your sake, if you've lost patience, and certainly not to annoy you -- but for the sake of others who might read this exchange: Money is created by banks out of thin air.
Admittedly, the concept is rather tricky and has the flavour of a paradox, but nevertheless this is what actually happens. Let me close with a somewhat longer quote from Peter Bernstein, to whet your appetite for the whole book.
I highly recommend this short and very accessible book if you wish to understand what money really is and how it works. I must say that so far--I'm 24 minutes into the show--it is unfortunate that much of the discussion is about the open source software development model.
That issue is basically irrelevant to what is important about BitCoin! When a commercial bank lends out bitcoins, new money is created. Bernstein is saying the same thing I have said.
You seem to be lost in the choosing of words by Bernstein. Because he probably used som literary freedom when he said a banker " can create money out of nothing ". More accurate is the quote of Bernstein above. Creation of check money is a response to credit expansion. OK, my last attempt. Imagine there is only one bank. Its vault is empty, it has no deposits and has made no loans.
Now, Jones comes to the bank and asks for a loan. Can the bank give him a loan when the vault is empty and there are no deposits? The bank tells Jones: It sits in Jones's account.
Jones now wants to use the loan to buy something from Smith. Smith takes the check to the bank. A transaction has taken place between Jones and Smith: Jones bought some goods from Smith and paid him with money.
Notice that when the transaction took place, the total amount of money in the system did not change: After a while, Smith wants to buy something from Jones. A second transaction has taken place. Now, for the last act: Does he have the money to do it? So, he tell the bank: I'm repaying the loan. The total money in the system is back to what it was at time zero: Now, take this basic scenario and add complications, such as interest, many banks and many customers, paper currency, credit cards, bonds, the FED, the State Treasury, etc.
None of this changes the essence of the money creation and destruction process just illustrated. The details are complicated, there are various institutions involved, rules and customs etc. These are just facts you have to know, but the logic is not difficult to figure out, though subtle and quite surprising when you learn about it for the first time.
The fact is that practically all the money it lends out needs to be cash and not check money as you use in your example. The check money will soon be transformed to cash because the borrower will spend the money, and other banks wont accept anything other than cash in payment. Check money are not traded between banks. What loans creates are new demand deposits in other bank accounts.
And thats how new money is created. If you read Bernstein one more time, you will realise that lending causes an increase in the overall demand deposits. Now the 20 dollars A and C have in the bank are check money, also called m2. Check money are important and they are considered inflationary.
So if banks lends too much it can cause inflation. You will not avoidthat banks creates money with bitcoins. Because its the lending that creates the extra check money. My understanding in this area is pretty shallow and I have the impression that yours may not be much deeper, so perhaps indeed someone more knowledgeable could shed some light on these issues. Haven't we by any chance stepped into the old controversy over endogenous money? Ole, Adam Gicz I think there's some confusion in the discussion between different measures of money supply M0, M1, etc.
But as far as fractional-reserve banking I agree with Ole's explanation. Have a look at the Wikipedia articles on Money Supply and how money is created by fractional-reserve banking. Look at it another way: Say person A earns "real money" M0 money supply , deposits it at a bank and the bank gives A an IOU in return in the form of a positive bank balance. The same can happen with bitcoin if anyone would trust an unregulated bitcoin bank.
However there is a difference: With regular money like dollars there is inflation so you need to put it in a bank to get some interest and prevent its value eroding as quickly. If bitcoin has no or negative inflation there is not such a need to put it in a bank. So you'll just about keep up with inflation. When listening to the podcast I knew you had found a topic that would generate a lot of comments. I think it was an exceptionally good topic, but I remain very pessimistic about bitcoin as a mainstream currency.
I see strong signs that it can be a niche method and could be an excellent market to study. However, my reservations comes from the source of the value created.
The amount of bitcoin is arbitary and not based on value created. As the currency grows the conflicting interests are going to be very hard to manage from the controling interest that magnatize the bitcoins prints the money. Thanks for the great podcast and I hope this podcast expands Econtalk as a currency of relm in knowledge. The most important single thing about BitCoin appears to have been missed by some of the commentators. No person or organization—nor even a large group of people or organizations—can accelerate the production of BitCoins faster than the prescribed rate nor can they slow it.
It is even less manipulable than the supply of gold, which people can accelerate by investing in gold-mining. There are other interesting things about BitCoin, some of which you touched on in the podcast, but this is the most interesting one to me. BitCoin is sufficiently important that you should consider getting a different interviewee find someone with a dissenting opinion perhaps? Here is a graph of the estimated aggregate computational power being spent per second on BitCoin, around the world:.
Thanks to the denizens of the bitcoin-dev channel for answering my questions about the current state of the BitCoin network. I applaud any attempts to bring down the Fed - maybe I should not be writing this in public, lest they send the NotHaus brigade to get me - so on that note I like BitCoin.
But BitCoin, as described by Andresen, is a flawed system that does not address the basic concerns about fiat currency nor does it add value over gold. Namely, like any fiat currency, it is created by men, therefore it is controlled by men. Andresen says the 'rules' of BitCoin can't be changed That may be OK when it's run by a gang of benevolent technonerds, but once guys like Hank Paulson get their hands on it - and they would if it became a source of power - they won't need much time to convince the masses that the rate of BitCoin printing needs to increase exponentially to avert various disasters.
It didn't work out for Socrates either. Gold seems "irrational" to intelligent people after a lifetime of indoctrination against it.
But it has a number of properties that make it attractive as a currency. Unlike BitCoins, it cannot be created by man, and cannot be controlled by man. Unlike other less "barbaric" seeming candidates units of energy comes to mind , it is fungible, easy to store and transport, and has limited other uses.
And doesn't require a phd in number theory to understand. So I don't see any advantages offered by BitCoin over the status quo. Luckily, gold already exists, you can go buy some today. The BitCoin enterprise might usefully be considered in a broader historical context. After all, private currencies, issued by commercial banks, were common in the 19th century, and exist today in places like Hong Kong I believe. In much of the world, currency then evolved to a commodity-based government-issued monopoly, then to fiat money function not just as a medium of exchange and store of value, but also as a macro policy instrument.
The role of technology in re-introducing competitive privately created currencies competing with government monopoly fiat GMF money is certainly intriguing. An important question is, from the users perspective, what advantages do BitCoins offer over GMF money? I didn't feel the interview quite answered that question squarely, though a couple of factors were explored: With respect to the latter, there is an arbitrage condition with available dollar investment returns that must be examined.
Another point not discussed though I suspect the answer is whether the government might assert a monopoly right against BitCoin as it recently did in prosecuting Bernard von NotHaus who had created so-called "Liberty Dollars" http: It is possible that it was specific technical features of Mr.
The most creative features of BitCoins are, in my view, it virtual nature using distributed computing, and the seigniorage lotttery it uses. One is tempted to believe that it has found a means of basing a currency to establish trust in its stability that does not suffer from the criticism of commodity-based currencies: But that criticism applies here as well since real, scarce, computing power is required to base the currency see the chart linked earlier by Zooko: Hence, opportunity cost here as well.
Sorry to post so late, but I just listened to last week's podcast yesterday. This was an excellent topic that deserves continued monitoring and assessment. Fractional reserve banking will not be possible with Bitcoin. If someone attempts that, they will be attempting something very dangerous.
There will be blood unfulfilled promises.