Crazy people, speculation, and bitcoin 'mining'

[aceluby]

Why would I ever trade my insured fiat currency which can be used wherever I want for an uninsured fiat currency that has far more lmited uses? It doesn't make sense to me.

Secondly, isn't a 'gold backed' system also basically the same as a fiat system? Metals/gems/etc are worth a value that is set and can be traded for goods, but have little to no use on their own? Sounds an awful like dollars...

Never really understood how much attention our money system is focused on when it's always been a value system to barter skills and goods. I feel there are so many other things we could concentrate on that might actually happen instead of lamenting about times long, long gone.

[lupis42]

Sure - but with eBay you get buyer guarantees as part of paying their fees. They're acting as mediators there. This is much more akin to craigslist. And just like craigslist, it's rife with scamming opportunities. Unlike craigslist there is no personal contact that at least gives some inspection opportunity of the goods, nor is it in a local community.

But again - Bitcoin is essentiall a currency. It's not an alternative to eBay or Craigslist, it's a way to pay someone for that transaction. My point is that the opportunities for scamming someone are the same as they are with 'dollars', in that they depend on a lot of things about the relationship that aren't part of the payment method or the underlying currency.

They can claim that you didn't hand 'them' anything at all. So it's even less verifiable than the grocery store.

So can the cashier at the grocery store. The only difference is you have a recording of them saying "put money here" and a blockchain that shows that you did. How much good that does you varies, but the same is true for VISA right now - a lot of fraud winds up getting eaten by issuers, because it can't be recovered because the merchant is in another country and tracking them down and recovering the funds is effectively impossible.

Sure - but my point is that duplication of postal money orders is not a good model to do. Again, we already have wire transfers to banks, money orders with registered receipts. These are things that my cash can currently do. While cash by itself isn't digital, it can easily be turned into something that is.

Easily is relative -electronic dollar transfers are still at least an order of magnitude more expensive than bitcoin transactions, and often slower or more cumbersome.

Bitcoin gets the conversion part right, but leaves everything else to be hosed. And the 'everything else' part is the most important part of the system.

It's a currency, not a replacement for the entire financial system. Of course there are a lot of components to payment processing that it doesn't do inherently, but that's not the point. Bitcoin is, first and foremost, an alternative to dollars. Whether and how well the financial system will support it will depend on a lot of things, but the fact that Bitcoin isn't a replacement for the entire payments industry doesn't make it a failure as a currency.

The degree to which Bitcoin builds in a lot of things that used to require the payments industry makes it a more attractive currency, while the fact that it's deflationary makes it a less attractive currency. Those are features and deficiencies of it as a currency. It allows for a much more flexible digital payment network than we have today, but that doesn't mean it is a more flexible payment network than we have today all by itself.

Digitalization of funds is ubiquitious. It's easy. It's fairly cheap for decently sized amounts of money. It's very fast, too. Bitcoin in theory is better, but it still needs all the other things that digitalization of cash already has - the verification, disputed claims, fraud & embezzlement protection, guarantees of savings, etc. And all of that isn't free.

All of those are services, that are offered by various intermediaries and providers. I'm not saying that they're free or that Bitcoin makes them free. Most of those things can be done at least as cheaply and easily with Bitcoins as dollars, many will be a lot cheaper and easier. Some of them may even be more expensive to do with Bitcoins than dollars.

so at the end of the day you're left with something that is basically digitalized cash with none of the value that physical cash actually has while having many of the drawbacks that physical cash has. You can make it not have those drawbacks, but then you've just reinvented banking.

It's not reinventing banking, it's just banking. Just like the Euro didn't require the re-invention of banking, it's just another currency for banks to handle. Just as being a currency of primarily paper notes instead of coins makes some things substantially easier and cheaper for those banks, being a currency purely composed of bits makes some things easier and cheaper for those banking services, but they don't have to be re-invented. There's no reinvention required, although there is some innovation enabled.

This, by the way, is false; identity verification and fraud protection is a massive part of what value paypal provides. While you might not consider it a big deal, it is quite possibly the biggest thing paypal and ebay is concerned about after protecting actual money losses.

Dispute resolution (of which fraud protection is a part) yes. Identity verification is a very different thing. If I send money to [email protected]'s Paypal account, what Paypal verifies for me is that the money went to that account. If I intend that as a payment to you, and you claim you've never gotten it, Paypal isn't going to tell me whether [email protected] is Kalbear or not, nor are they going to give me your real name or identify you to me, at least as far as I know. (I've never had to push a serious dispute through Paypal, so if there's indentifying info revealed as part of that process, I'm not familiar with it).

Between Paypal and I there's an identity verification process to confirm that I have access to that account, and when I want to put money into Paypal, Paypal will need me to fulfil any identity verification required by whatever source the funds are coming from, but those are all between account holder and account, or between account holder and external source of funds, not between the two accounts engaging in a transaction.

[Commodore]

Secondly, isn't a 'gold backed' system also basically the same as a fiat system? Metals/gems/etc are worth a value that is set and can be traded for goods, but have little to no use on their own? Sounds an awful like dollars...

Gold-backed system meaning every dollar is worth a fixed mount of gold. So you can't print more dollars if you don't have the gold to back it up. Fiat currency can be "printed" with a keystroke, instantly devaluing the currency and destroying whatever wealth you have saved in dollars.

http://www.measuringworth.com/uscompare/

Since the creation of The Federal Reserve Bank in 1913, the dollar has lost 96% of its value.

Since going off the gold standard in 1971, the dollar has lost 82% of its value.

[Galactus]

Gold-backed system meaning every dollar is worth a fixed mount of gold. So you can't print more dollars if you don't have the gold to back it up.

The problems with this has been pointed out numerous times: For starters, gold isn't

Gold-backed system meaning every dollar is worth a fixed mount of gold. So you can't print more dollars if you don't have the gold to back it up. Fiat currency can be "printed" with a keystroke, instantly devaluing the currency and destroying whatever wealth you have saved in dollars.

http://www.measuringworth.com/uscompare/

Since the creation of The Federal Reserve Bank in 1913, the dollar has lost 96% of its value.

Since going off the gold standard in 1971, the dollar has lost 82% of its value.

Yes, and?

[TrueMetis]

Gold-backed system meaning every dollar is worth a fixed mount of gold. So you can't print more dollars if you don't have the gold to back it up. Fiat currency can be "printed" with a keystroke, instantly devaluing the currency and destroying whatever wealth you have saved in dollars.

http://www.measuringworth.com/uscompare/

Since the creation of The Federal Reserve Bank in 1913, the dollar has lost 96% of its value.

Since going off the gold standard in 1971, the dollar has lost 82% of its value.

So how was the dollar devalued before going off the gold standard? I seriously doubt all that lost value is from new gold. Though if it is it says nothing good about the value of gold. And I'm confused about what's stopping a government from printing more money when on the gold standard. Printing more money would just make gold worth more relative to the dollar.

[Galactus]

So how was the dollar devalued before going off the gold standard? I seriously doubt all that lost value is from new gold. Though if it is it says nothing good about the value of gold. And I'm confused about what's stopping a government from printing more money when on the gold standard. Printing more money would just make gold worth more relative to the dollar.

Each dollar is tied to a fixed value of gold. (and theoretically redeemable for it) this can be faffed around with a bit, but in general this makes for a finite supply of currency.

It's quite obvious why this is a bad thing if you think about it for a few moments.

[Commodore]

Each dollar is tied to a fixed value of gold. (and theoretically redeemable for it) this can be faffed around with a bit, but in general this makes for a finite supply of currency.

It's quite obvious why this is a bad thing if you think about it for a few moments.

Seriously, can you imagine precious metals being used as a medium of exchange? When has that ever been tried in human history?

[Galactus]

Seriously, can you imagine precious metals being used as a medium of exchange? When has that ever been tried in human history?

It's not precious metals being used as a medium of exchange. It's a currency being tied to precious metals being used as a medium of exchange. Not quite the same thing.

[Shryke]

Seriously, can you imagine precious metals being used as a medium of exchange? When has that ever been tried in human history?

The Gold Standard has a long history. It's why we know it's a terrible idea. We have experience and evidence.

[ants]

Seriously, can you imagine precious metals being used as a medium of exchange? When has that ever been tried in human history?

And how big was the world's population then?

You say the dollar has lost that value - presumably against gold. Tell me, what is Gold's value as a % of world asset values now? Somehow I suspect the issue isn't that the currency is worth less, but that Gold as a proportion of world assets is getting rarer and rarer. Which having your currency tied to it would be very very bad.

[Galactus]

And how big was the world's population then?

You say the dollar has lost that value - presumably against gold. Tell me, what is Gold's value as a % of world asset values now? Somehow I suspect the issue isn't that the currency is worth less, but that Gold as a proportion of world assets is getting rarer and rarer. Which having your currency tied to it would be very very bad.

Not to mention that gold actually has industrial uses. Which makes using it to back up currency fairly problematic.

EDIT: Not to mention that pegging the dollar to a fixed weight of gold is just as much a fiat decision as anything else.

[TrueMetis]

Each dollar is tied to a fixed value of gold. (and theoretically redeemable for it) this can be faffed around with a bit, but in general this makes for a finite supply of currency.

It's quite obvious why this is a bad thing if you think about it for a few moments.

How was it tied? Did X dollars always have to get you Y amount of gold or something? In case you haven't noticed I really don't get how the gold thing works.

[Galactus]

How was it tied? Did X dollars always have to get you Y amount of gold or something? In case you haven't noticed I really don't get how the gold thing works.

Depends a bit on the timeframe, but yes, at one point you were theoretically able to exchange a dollar for a fixed amount of gold. (that was the original concept of what "a dollar" was, a piece of gold, or well, in this case silver, since it was a bimetallic standard)

The problem is of course that this ties the size of your availible currency reserves to a factor that is completely out of touch with the rest of the economy, instead it's tied solely to the price of gold at any given moment.

EDIT: Oh, and it's notable that the gold standard was only thing for a pretty short duration of time. For most of history the face value has only been very tangentially related to the commodity value of coins. (IE: They were de-facto fiat currencies) and people either just accepted the face value (generally true if operating inside an economic zone of whatever government struck the coins) treated them as simple scrap metal (if operating outside it) or just made do without coins entirely. (relying on letters of credit, or some kind of bartering (which could be very sophisticated, especially if trading in bulk goods)

[The Marquis de Leech]

Gold-backed system meaning every dollar is worth a fixed mount of gold. So you can't print more dollars if you don't have the gold to back it up. Fiat currency can be "printed" with a keystroke, instantly devaluing the currency and destroying whatever wealth you have saved in dollars.

http://www.measuringworth.com/uscompare/

Since the creation of The Federal Reserve Bank in 1913, the dollar has lost 96% of its value.

Since going off the gold standard in 1971, the dollar has lost 82% of its value.

As Adam Smith pointed out, wealth depends on goods, not gold. What is US GDP in 2014 vs 1971 or 1913?

[Shryke]

The bolded part is exactly how I'd describe central banks as well. But I don't think you and I will get anywhere using this thread to reiterate that we have very different options on the trustworthiness of regulatory power controlled through the political process, and it feels a bit off-topic.

It might be how you'd describe central banks, but it would be the wrong way to do so. Central banks are interested in market stability. It's their job. It's what they do.

A bitcoin mining cartel is not. It is not their concern. It's only been a concern this time because of ideology. That does not have to remain true and won't. The whole point of the example is that the obvious weakness in bitcoin's setup isn't theoretical, it's already happened and only been put off till someone else comes along.

Frankly, if you don't trust central banking, that may explain your defence of bitcoin since that's the standard combination of paranoia and ignorance that underlies the bitcoin movement.

I'm not claiming it's free - but while it's harder to measure, it's not even close to VISA on a per transaction basis. Also, unlike VISA, the system allows a range, so that it's possible to have cheap slow transactions AND fast more expensive transactions on the same network.

This is part of what I mean about the advantages of a decentrallized network. VISA has to work the same way for everyone, which means your Amazon purchase has to be approved the same way your Starbucks purchase does, even though having the approval within seconds instead of within minutes is worthless for the Amazon purchase. Having a decentrallized network makes it much easier to have one network that can adapt to multiple models.

I'm not sure you even understand how bitcoin works, since it handles all transactions the same as well. Just because it's decentralized doesn't mean it handles them differently, it just means the processing is spread out over many different people. All being paid in bitcoins to do the work.,

VISA or it's ilk can handle more transactions then bitcoin and in any size bitcoin can. It's just not generally profitable for the users to use the network that way because the costs are pretty much fully passed on to the user.

Right but that's even more true of typical, paper currency. Kalbear's complaining that Bitcoin behaves like... well like all the money that governments issue.

Except paper currency is safer because it's a physical object. You are correct that Bitcoin behaves alot like paper money. It's just it behaves like the worst aspects of paper money while also having all the vulnerabilities of a networked digital system. It's the worst of both worlds.

It's why there's so many goddamn major bitcoin thefts. Because Bitcoin is easy to steal. Way easier then cash, far easier to transport and far easier to hide. It's all the anonymity of cash with none of the handling and laundering issues.

There are lots of ways to use Bitcoins that are more sophisticated - see, upthread, the example of '2 out of 3' transactions, which much more closely resemble a credit card purchase - as long as buyer and seller are happy, goods are exchanged, if there's a dispute, the previously agreed on moderator decides who wins. The fact that most people are using it as a bulk-cash mailing service, and putting their money in uninsured banks is not a problem with Bitcoin, it's just the natural behavior of early adopters.

Actually it is the problem with Bitcoin since that kind of unregulated decentralization is the goal. And the result is what we see: theft, fraud and rank incompetence.

[Shryke]

But again - Bitcoin is essentiall a currency. It's not an alternative to eBay or Craigslist, it's a way to pay someone for that transaction. My point is that the opportunities for scamming someone are the same as they are with 'dollars', in that they depend on a lot of things about the relationship that aren't part of the payment method or the underlying currency.

No, it's not. Because bitcoin, by it's nature, must function in an anonymous, digital world where there is no way to secure or trace transactions or the people you are making those transactions with. That's by design. The whole point is, as others pointed out earlier, anonymity. Untraceability. It's a feature. A goal.

And that feature makes it far less secure.

So can the cashier at the grocery store. The only difference is you have a recording of them saying "put money here" and a blockchain that shows that you did. How much good that does you varies, but the same is true for VISA right now - a lot of fraud winds up getting eaten by issuers, because it can't be recovered because the merchant is in another country and tracking them down and recovering the funds is effectively impossible.

Actually it's because it's not worth the cost. Fraud doesn't get eaten, fraud is insured against.

It's a currency, not a replacement for the entire financial system. Of course there are a lot of components to payment processing that it doesn't do inherently, but that's not the point. Bitcoin is, first and foremost, an alternative to dollars. Whether and how well the financial system will support it will depend on a lot of things, but the fact that Bitcoin isn't a replacement for the entire payments industry doesn't make it a failure as a currency.

The degree to which Bitcoin builds in a lot of things that used to require the payments industry makes it a more attractive currency, while the fact that it's deflationary makes it a less attractive currency. Those are features and deficiencies of it as a currency. It allows for a much more flexible digital payment network than we have today, but that doesn't mean it is a more flexible payment network than we have today all by itself.

You contradict yourself. Bitcoin is and is meant to be a replacement for the current fiat money system. That's the point. That's what it does. It's just fucking bad at it because it's designed by people who don't understand economics. After all, if they understood it, they wouldn't be trying to build an anonymous deflationary currency out of nostalgia for the gold standard.

That is, of course, why it's the Dunning-Krugerrand.

It's not reinventing banking, it's just banking. Just like the Euro didn't require the re-invention of banking, it's just another currency for banks to handle. Just as being a currency of primarily paper notes instead of coins makes some things substantially easier and cheaper for those banks, being a currency purely composed of bits makes some things easier and cheaper for those banking services, but they don't have to be re-invented. There's no reinvention required, although there is some innovation enabled.

But it is supposed to replace banking. Even you've stated this in your replies to me. It's the whole point of the damn thing.

It's just that it turns out we have heavily regulated banking for a reason, as bitcoiners are discovering on a daily basis.

[Shryke]

Anyway, yet more strange bitcoin news today.

One death potentially linked:

http://www.cnbc.com/id/101468694

Autumn Radtke, the 28-year-old CEO of an upstart bitcoin exchange, died last week under mysterious circumstances at her home in Singapore.

The U.S.-born head of First Meta was found dead by police on Feb. 28, with the cause of death yet to be determined. In a statement on its website, First Meta said the company "was shocked and saddened by the tragic loss of our friend and CEO Autumn Radtke."

And Bitstamp got hacked, although at this point all they made off with were it's client list.

[The Marquis de Leech]

EDIT: Not to mention that pegging the dollar to a fixed weight of gold is just as much a fiat decision as anything else.

It's especially entertaining if there's a bimetallic peg. Good old Gresham's Law and all.

[aceluby]

Gold-backed system meaning every dollar is worth a fixed mount of gold. So you can't print more dollars if you don't have the gold to back it up. Fiat currency can be "printed" with a keystroke, instantly devaluing the currency and destroying whatever wealth you have saved in dollars.

http://www.measuringworth.com/uscompare/

Since the creation of The Federal Reserve Bank in 1913, the dollar has lost 96% of its value.

Since going off the gold standard in 1971, the dollar has lost 82% of its value.

And why should I care about the 'value' of the dollar? Is it not just a way to barter goods and services with little to no value besides 'Oh, shiny!'? Whether I work for $100 printed dollars or 25 gold pieces and both can be traded for the same goods and services, what's the difference?

[ants]

Effectively either Bitcoin isn't a financial system, in which case its an asset class, or it is also a financial system in which case it is a currency (albeit a poor one). Nearly all the benefits being spoken of are in respect to transactions - i.e. the financial system. To try and say it isn't a separate financial system seems weird.