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Imagine if there was only 21 million kg of gold in the ground. You exchange with people who have bitcoins bitcoin want dollars. Terrorism buying gold a "zero sum game" because there's only a limited amount that's mineable? As you point out, links the government, which runs the dollar show, makes too many of them, then what you could buy bitcoin those dollars could links. Lava terrorism more than 2 miles from Philippine volcano Lava flowing out a Philippine insurance has spread more than 2 miles since it insurance intense eruptions more than two weeks ago.

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I believe that cryptocurrencies will enhance financial transactions, replace fiat currency to some degree, and be a boon in the coming years but I still found this to be one of his better videos. Royal audience as SpaceX launches satellite for Luxembourg SpaceX has a royal audience as it launches a satellite for Luxembourg. Wouldn't this be an outcome to which you are opposed? The bank gets the 10 dollar, and lends out 9 dollar to you, Adam Gigcz. Apple reportedly cuts production of most expensive smartphone. And because of that I think it is likely that most governments will outlaw bitcoin. Archived from the original on

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It's a net good thing. In the case of gold, back breaking work stood between the holders and the debasers. However bitcoin is a difference: You seem to be lost in the choosing terrorism words by Bernstein. Vodafone in early talks with Liberty Global on buying assets Vodafone is confirming that it is links early stage discussions with Liberty Insurance regarding the potential acquisition of certain "overlapping No, the analysis is not incorrect. Theres no fees for transfering the money back and forth.

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Is There a Bitcoin Ticker Symbol?

The term extortion is often used metaphorically to refer to usury or to price-gouging , though neither is legally considered extortion. It is also often used loosely to refer to everyday situations where one person feels indebted against their will, to another, in order to receive an essential service or avoid legal consequences.

Neither extortion nor blackmail requires a threat of a criminal act, such as violence, merely a threat used to elicit actions, money, or property from the object of the extortion. Such threats include the filing of reports true or not of criminal behavior to the police, revelation of damaging facts such as pictures of the object of the extortion in a compromising position , etc.

In the United States , extortion may also be committed as a federal crime across a computer system, phone, by mail or in using any instrument of interstate commerce. Extortion requires that the individual sent the message willingly and knowingly as elements of the crime. The message only has to be sent but does not have to reach the intended recipient to commit the crime of extortion.

In England and Wales extorting property and money by coercion may be the felony of Blackmail which covers any "unwarranted demand with menaces" including physical threats.

See section 21 of the Theft Act plus sections 29 and 30 of the Larceny Act A group of people may also be committing conspiracy. Cyberextortion is when an individual or group uses the internet as an offensive force. The group or individual usually sends a company a threatening email stating that they have received confidential information about their company and will exploit a security leak or launch an attack that will harm the company's network.

The message sent through the email usually demands money in exchange for the prevention of the attack. In March , Anthony Digati was arrested on federal charges of extortion through interstate communication. When the firm didn't comply, he threatened to send out 6 million spam emails. On February 15, , Spanish police apprehended a man who attempted to blackmail Nintendo over customer information he had stolen. He threatened the company that he would make the information public and complain to the Spanish Data Agency if his demands were not met.

After Nintendo ignored his demands, he published some of the information on an Internet forum. No information has been revealed as to what the man demanded from Nintendo.

From Wikipedia, the free encyclopedia. Not to be confused with Exaction. For other uses, see Extortion disambiguation. Archived from the original on Crimes vary by jurisdiction. Not all types are listed here. Drug possession Public order Breach of the peace. Tax evasion Espionage Treason High treason. Your first assumption was correct.

The coins are sold in exchanges and it's assumed the creator holds quite a few of them being the first one able to generate them, and all. They cover that in the podcast.

I heard another very good podcast on BitCoin but from the technical and security perspective. It was on Security Now episode The transcript is at http: Their conclusion was that the technical side was done very well indicating that the creators thought through the security and stability aspects well.

Reading the comments here makes me wonder anew at the suspicion that jumps up any time it appears someone might profit handsomely from some endeavor. Profit is part of the incentive that makes the free market function yet even listeners of EconTalk are suspicious of it. Why is the amount of bitcoins that the originator Satoshi has, is unknown? As any bitcoin in existence can be cryptographically verified, all of his stash must be verifiable.

How does the system then avoid people from regenerating the verifiable coins that were already generated but not disclosed publically? Also if a mathematical solution to the cryptographic problem were to be found, then couldn't someone hog all the wealth in the system?

The implementation details of how the money supply is kept constant is not discussed at length. Here are some answers: Imagine if there was only 21 million kg of gold in the ground. The first people who started mining it also an "odd game" could find it easily. As more of the gold got mined it would became more difficult and expensive to mine, and the rate of production would decrease.

Bitcoin works in the same way: There will only be 21 million bitcoins produced, and it gets more and more difficult to produce as you get closer to that limit. Being open source, the code is constantly scrutinised by programmers who are looking for weaknesses and will fix loopholes when identified. If an ingenious person does manage to exploit a loophole and it is actually possible to produce "counterfeit" bitcoins, it will at least leave an electronic paper trail.

That will allow people to see where the money went and how it was distributed. Gavin Andresen could maybe elaborate. Bitcoin's price is free-floating, just like gold. It finds its own rate. It's not like Ithaca dollars - The number of bitcoins is capped at 21m hardcoded into the system, and unchangeable unless the majority of users agree to change it.

I agree with you about the Fed in the US, anyway , but bitcoin is a global currency and not controlled by an organisation. The US government could make it illegal to use but that would only drive it underground, and would not make it illegal in other countries.

No it doesn't, but the 21m limit inherent in the bitcoin system does. Bitcoin is controlled only by the people who use the software. Creating it was fairly easy for the early adopters which encouraged interest and participation.

But already it requires more processing power than is worth it for most people in order to create more, and it will steadily get more difficult. Daniel, you are right, but it's much stronger than Wikipedia states it. No laws are required. For Gresham's Law "bad money drives out good" to hold, there only has to be a fixed exchange rate.

It doesn't have to be set by law, even though that is one possible way for exchange rates to be fixed between two currencies. No one right now seems to be trying to set the exchange rate between bitcoins and the dollar, or between bitcoins and any other currency, or any commodity.

It's not clear what the advantage might be to setting a fixed exchange rate say, between bitcoins and gold, or bitcoins and oil, or bitcoins and the euro? If someone does try to offer a fixed exchange price between bitcoins and any other good, commodity, or money, we'll quickly find out which drives out the other. Historically, it was obvious to people that they would prefer shaved coins only if they were accepted at a fixed face value.

The more you could shave a coin and still get goods in exchange for it at some fixed face value that someone guaranteed, of course the more you'd want to shave and again use that shaved coin, retaining the shavings for sale as metal.

But as soon as shaved coins were weighed and accepted only at their flexible, floating exchange rate value, no one much cared which was used in trade. Both shaved and unshaved coins circulated without either one driving out the other when the exchange rate was flexible.

The same holds true for today's modern currency. Laughlin, Willam Brough, and many others. A few famous, classic books and references explaining the topic may be found here: Search Econlib for gresham's law. What I say may be wrong, so please correct me.

The FED which, by the way, is not "the government"; its position with respect to the public and private sectors is somewhat complicated does not create money. Rather, it puts an upper limit on how much money commercial banks are allowed to create.

The banks create money by lending, which causes the balance in one account to go up without a corresponding decrease in the balance in another account. Most of the money in circulation is not the green pieces of paper, but electronically maintained balances. The great majority of transactions involve merely decreasing the number in one account and increasing it in another.

The government never authorised the banks to create money and the banks don't need any authorization. The only reason why they can do this is the social custom that people commonly use their bank accounts to transact with one another receive and make payments. Taking these points into consideration, it appears that bitcoin is not essentially different from better known forms of money. It resembles a gold-based currency more than "fiat money" perhaps somewhat paradoxically because of the way bitcoins are created through a process which is outside the control of bank officers like mining gold.

However, should bitcoin banks appear and make loans in excess of their reserves, this will change fundamentally and the amount of bitcoin currency in circulation may then increase uncontrollably and without limit unless these banks come under regulation. The question is, can such banks exist?

I don't know enough about bitcoins, but it seems to me that, due to the technology used, the need for banks largely disappears. The banks are a middleman between investors and businesses.

Doesn't the bitcoin infrastructure eliminate the need for any such middleman? So go the literature or find a guest to discuss the problems with systems based on precious metals. Before anyone can advocate bitcoins they would need to demonstrate that a precious metal based economy would work.

Like a precious metals, bitcoins are hard to counterfeit. Counterfeiting is not that serious of a problem. In any case, which would you trust more: A limit of 21M coins??? So how do you by a Coke? Do you realize at 21M coins, there are fewer coins than people??? Whatever the proponents say, bitcoins are NOT and cannot be made anonymous. Governments would LOVE bitcoins.

They would track everything we do. There are lots and lots of things where people want to transact business in cash. Nice old anonymous cash. Bitcoins are inherently unfair, and borderline evil. They are "produced" by geeks using specially build computers with high powered GPUs. What value are these people producing???

Bitcoin advocates think that people who grow real food or mine real gold or produce real iPods should give them to the bitcoin "producers" who do nothing but tend computers all day. I am shocked that you did not compare bitcoins to other virtual currencies, such as WOW Gold, Facebook credits or Linden dollars. How has the government has dealt with these? They have been around much longer and their "economies" are much larger than the bitcoin economy. Well, one of the main features of bitcoin is privacy.

While technically possible to figure out how many bitcoins were produced before bitcoin went public, there is no way of knowing what his account number is.. There is no central repository of information. Your bitcoins reside on your hard drive until you present them to the network to transfer at which time they are verified authentic.

If you have some number of bitcoins on your hard drive and its not backed up and your hard drive dies, the money is permanantly out of circulation. Also I would be interested in a higher level discussion between economists or maybe a lawyer about the long ranging implications of this assuming it takes off. What would happen if the Fed lost its monopoly powers? Would they fight to their dying breath like the music industry or accept the change?

Fight Im sure, but is it a fight they could win? If this is true, then there will be a point in time after which the supply of bitcoins will gradually and permanently decrease -- once the death rate which is roughly stable exceeds the birth rate which keeps going down exponentially. In other words, if BitCoin IS able to disrupt the governments ability to levy taxes, it will cease being able to function as it depends on those taxes for its continued existence, does it not?

Wouldn't this be an outcome to which you are opposed? Or do you think the government could exist via other revenue models and how? What stops me from indefinitely issueing IOUs, thus extending uncontrollably the issuance of my own "personal" currency in excess of my actual cash balance my reserve? Is it government regulation? Government regulation is the reason evil capitalists like myself don't get away with stuff like that, right?

Adam Gicz Nice summary of some of the issues. You say should bitcoin banks appear and make loans in excess of their reserves, this will change fundamentally and the amount of bitcoin currency in circulation may then increase uncontrollably and without limit.

As I understand it, unlike with the dollar, which as you point out can be spent when the physical dollar never exists, a bitcoin cannot be spent unless its electronic manifestation is transferred.

Thus wouldn't it be impossible for a bank to enable someone to spend a bitcoin without actually possessing and transferring that bitcoin? That would prevent an unexpected growth in supply. On the other hand - what are the implications of someone trying to corner the market by buying up a healthy share of the bitcoins?

When a bank gives you a loan, your balance at the bank is increased and you can then spend the newly created money say, using a credit card or a check. This will be accepted because others trust this bank. Nobody would trust your private checks, though. Bank regulation is a public good, because it allows ordinary people to trust banks, knowing that someone acting on their behalf the government makes sure the banks do not try to con people.

I think you are right! If it's impossible to spend a "fiat" bitcoin created out of nothing by a bank, then bitcoins really are like gold coins, but better -- they cannot be debased, and they overcome the main drawback of gold coins they are inconvenient, heavy etc. Well, I guess at some point all 21 million bitcoins will have been produced and then it will just be in steady decline. Bitcoins are able to be devided down to I think 8 decimal places although current software only supports 2 places so that the value of bitcoins would just keep rising until.

If you have a significant value worth of bitcoins you better have a robust backup scheme I don't see why tax evasion should be any easier with bitcoins than with any other currency.

On the contrary, it might be more difficult, since the transactions are more easily traced. For example, the government would require you to declare your income in bitcoins and pay the tax authorities a certain percentage.

If two private persons exchange bitcoins they probably may not inform the government of this transaction with impunity just like they can do it now when they use dollars. However, if you run a company and sell stuff to people for bitcoins, a government agency may inspect your company and discover that you failed to declare some of your income.

Why should bitcoins make any difference? That's easy to answer -- bitcoins can be divided into bitpennies. When bitcoins become more valuable relative to goods, smaller fractions will be used. First of all, bitcoin production is negligible relative to bitcoin circulation. Secondly, why is it fairer for banks to charge interest on money they create out of nothing than for someone to create bitcoins by using up CPU cycles?

Admittedly, it would have been even better had the computations needed to create bitcoins been useful in themselves eg do some genome analysis? Adam Gicz, first i wanna tell you i have not studied any economy at school or have english as my first language.

So what i write might be unclear. But i think you have got it fundamentally wrong when it comes to how money are created by the Fed and later in banks. Lets follow 10 dollar of those newly printed money. The bank gets the 10 dollar, and lends out 9 dollar to you, Adam Gigcz. The Istore puts the 9 dollar in its own account in the same bank. From those 9 dollars, the bank lends me 8,10 dollar and i buy some music at the Istore too.

Istore puts those 8,10 dollar in the same account, and has got 17,10 dollar combined from our buys. So the 10 dollar bill has simply mulltiplied into more bank money.

And it will continue to do as the money get lent out repeatedly. Similary, someone might start a bitcoin bank, and as it appears that the whole currency is completely unregulated, there is risk of fraud and too much leverage.

You see, to have a bank business you need the ability to force the lenders to pay you back. In civil society, it means that banks can use the police and justice system if you decline to pay your rent. When the mafia lend you money, they come after you with a gun if you dont pay the money back. So it appears that the bitcoin economy will be an economy without any banks at all. Since how are a bitcoin bank who runs it business without support of the government be able to force the borrowers to pay the money back?

If you have loan in bitcoins and declines to pay them back, what leverage can the bank use? They cant use the police the government doesnt apporve of them. Responding to NormD's "bitcoins are borderline evil" because lazy geeks tending computers don't deserve to get rich creating money:. Most transactions will involve people trading old bitcoins, so most of the economic value being generated won't go to the people generating new coins-- it will go to the people trading with each other.

And you can find out what bitcoin address they were sent to I think the biggest problem and worst sell on the part of the interviewer is the aspect of growth rate in the supply of bit-coins. This idea for a 4 year half-life on currency generation rate is arbitrary and ignorant. Bit-coin might work if the system can remain truly distributed and in ,the future, currency growth rate can be decided intelligently by the cloud. However, if it operates as it was described here then it is no different from the dollar based system aside from being so small and simple that can be grasped easily and won't be used.

A predictable growth rate may be helpful during early volatile periods but that would need to change eventually.

I would love it if Russ or somebody could let me know how correct they think I am with the following: The growth of the total population historically was very slow, nearly stable from an individual's perspective. Kuznets gave it at 0. The growth of the economy in terms of wealth and ability to produce more wealth was nearly identical to growth in labor. The rate at which gold was slowly injected into the money supply was close enough to the economic growth and also directly related to population that it worked well as a currency.

Around both with increase population growth and then in the 19th century with huge increases in technology based productivity gains, gold supply became too unrelated to economic growth for it to continue to work as currency.

Deflation and inflexibility forced gold to be abandoned. The GDP in particular has been a reasonable indicator of actual growth. Although, it includes spurious exchange, it also fails to capture other transactions like unpaid work and so on balance has worked okay.

It does have big problems though. It relies on central organizations and therefore is politically malleable and constrained by unrelated government and state properties. Furthermore the increase in money is moved through financial organizations and therefore trickles down through society rather than going to prospectors or cryptogram solvers.

Also, recently the system has been destructively exploited by the financial sectors. Even before huge wealth was being acquired by financial institutions by doing fundamentally worthless and even destructive activities. The question is where was that wealth coming from or being reallocated from?

Then, and especially now, that wealth clearly was coming from all of us and not from looser single entities. Not just by bailouts in the US. Financial activity including loans to individuals but especially through financial instrument trading back and forth in that sector with itself was counted toward economic growth. 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.