What are your thoughts on BitCoin?

[Zelig]

Well if we're going to start throwing wild unqualified approximations about, then who's to say?

Me, obviously.

 

[Crezth]

Me, obviously.

Smugly superior.

 

[Cutlass]

Paul Krugman

December 28, 2013, 2:35 pm
Bitcoin Is Evil

It’s always important, and always hard, to distinguish positive economics — how things work — from normative economics — how things should be. Indeed, on many of the macro issues I’ve written about it has been obvious that large numbers of economists can’t bring themselves to make that distinction; they dislike activist government on political grounds, and this leads them to make really bad arguments about why fiscal stimulus can’t work and monetary stimulus will be disastrous. I don’t, by the way, think that this effect is symmetric: although people like Robert Lucas were quick to accuse people like Christy Romer of fabricating macro arguments to support a big-government agenda, this didn’t actually happen.

But I come now to talk not about macro but about money — specifically, about Bitcoin and all that.

So far almost all of the Bitcoin discussion has been positive economics — can this actually work? And I have to say that I’m still deeply unconvinced. To be successful, money must be both a medium of exchange and a reasonably stable store of value. And it remains completely unclear why BitCoin should be a stable store of value. Brad DeLong puts it clearly:

Underpinning the value of gold is that if all else fails you can use it to make pretty things. Underpinning the value of the dollar is a combination of (a) the fact that you can use them to pay your taxes to the U.S. government, and (b) that the Federal Reserve is a potential dollar sink and has promised to buy them back and extinguish them if their real value starts to sink at (much) more than 2%/year (yes, I know).

Placing a ceiling on the value of gold is mining technology, and the prospect that if its price gets out of whack for long on the upside a great deal more of it will be created. Placing a ceiling on the value of the dollar is the Federal Reserve’s role as actual dollar source, and its commitment not to allow deflation to happen.

Placing a ceiling on the value of bitcoins is computer technology and the form of the hash function… until the limit of 21 million bitcoins is reached. Placing a floor on the value of bitcoins is… what, exactly?

I have had and am continuing to have a dialogue with smart technologists who are very high on BitCoin — but when I try to get them to explain to me why BitCoin is a reliable store of value, they always seem to come back with explanations about how it’s a terrific medium of exchange. Even if I buy this (which I don’t, entirely), it doesn’t solve my problem. And I haven’t been able to get my correspondents to recognize that these are different questions.

But as I said, this is a positive discussion. What about the normative economics? Well, you should read Charlie Stross:

BitCoin looks like it was designed as a weapon intended to damage central banking and money issuing banks, with a Libertarian political agenda in mind—to damage states ability to collect tax and monitor their citizens financial transactions.

Go read the whole thing.

Stross doesn’t like that agenda, and neither do I; but I am trying not to let that tilt my positive analysis of BitCoin one way or the other. One suspects, however, that many BitCoin enthusiasts are, in fact, enthusiastic because, as Stross says, “it pushes the same buttons as their gold fetish.”

So let’s talk both about whether BitCoin is a bubble and whether it’s a good thing — in part to make sure that we don’t confuse these questions with each other.

http://krugman.blogs.nytimes.com/2013/12/28/bitcoin-is-evil/

 

[Rashiminos]

It might be in the "then they laugh at you" stage.

 

[Archbob]

Its not a good medium of exchange because you can't really buy everyday needs with it, at least not it and it will never be a good store of value because it has no value. Gold actually has industrial uses.

 

[useless]

It might be in the "then they laugh at you" stage.

And from there it will remain, never progressing, forever being a joke.

 

[Zelig]

Its not a good medium of exchange because you can't really buy everyday needs with it.

The total amount goods that can be bought is more than the total amount of the goods that can be bought with most other currencies.

 

[Crezth]

The total amount goods that can be bought is more than the total amount of the goods that can be bought with most other currencies.

...and other useless statistics, tonight on "Pointless Rambling With Zelig."

 

[Zelig]

...and other useless statistics, tonight on "Pointless Rambling With Zelig."

No, it's a refutation of his point.

 

[Kaitzilla]

Underpinning the value of gold is that if all else fails you can use it to make pretty things. Underpinning the value of the dollar is a combination of (a) the fact that you can use them to pay your taxes to the U.S. government, and (b) that the Federal Reserve is a potential dollar sink and has promised to buy them back and extinguish them if their real value starts to sink at (much) more than 2%/year (yes, I know).

Placing a ceiling on the value of gold is mining technology, and the prospect that if its price gets out of whack for long on the upside a great deal more of it will be created. Placing a ceiling on the value of the dollar is the Federal Reserve’s role as actual dollar source, and its commitment not to allow deflation to happen.

Placing a ceiling on the value of bitcoins is computer technology and the form of the hash function… until the limit of 21 million bitcoins is reached. Placing a floor on the value of bitcoins is… what, exactly?

Placing a floor on the value of the U.S. Dollar is... what, exactly?
The only thing accepted to pay taxes with? Heh

I very much enjoyed the hypothetical scenario where Bitcoin destroys all fiat currencies and supplants them thus earning the moniker "evil"
Along with the large list of downsides pointed out by Stross.



So much Bitcoin news lately! Let's see hrmm

First, it's now being used to commit perfect crimes.
http://boston.cbslocal.com/2013/12/18/cryptolocker-ransomware-being-described-as-the-perfect-crime/

In the past 90 days, thousands of people worldwide have opened a seemingly innocuous link to track a holiday package. Suddenly, all the files on their computer are encrypted.

Joan Goodchild is the editor of “CSO,” Chief Security Officer magazine based in Framingham.

“This is a criminal operation. They are holding your folders and files ransom. We call this ransomware because that is exactly what it is. You need to pay in order to have access to them once again.”

And that is exactly what happened last month at the Swansea Police Department.

Cryptolocker ransomware took over the department’s entire computer system and the police were forced to pay a $750 ransom to get back control.

As the ransomware takes over your computer, a countdown clock appears and shows victims how long they have to pay up. That means purchasing a key, or software, to reverse the process. And victims must do that using the online virtual currency known as bitcoins.

“Once you have purchased a bitcoin, then the transaction that you use that bitcoin in is encrypted, and therefore you cannot trace it,” explained Goodchild.

Swindon says it appears to be the perfect crime.

The FBI tells WBZ-TV they are very worried about this spreading in 2014.

The scheme could be the work of organized gangs overseas. So far, no one has been caught.

Next, inside the Bitcoin mines. Giant computer farms created specifically to mine Bitcoins:
http://dealbook.nytimes.com/2013/12/21/into-the-bitcoin-mines/?_r=0

Today, all of the machines dedicated to mining Bitcoin have a computing power about 4,500 times the capacity of the United States government’s mightiest supercomputer, the IBM Sequoia, according to calculations done by Michael B. Taylor, a professor at the University of California, San Diego. The computing capacity of the Bitcoin network has grown by around 30,000 percent since the beginning of the year.

“This whole new kind of machine has come into existence in the last 12 months,” said Professor Taylor, who is studying mining hardware. In the chase for the lucky code that will unlock new Bitcoins, mining computers are also verifying and assigning unique identifying tags to each Bitcoin transaction, acting as accountants for the virtual currency world.

“The network is providing the infrastructure for making sure the currency is being transferred between people according to the rules,” Professor Taylor said, “and making sure people aren’t creating currency illegally.”

Even before Mr. Abiodun’s machines in Kansas City were up and running, it was clear that they wouldn’t be enough. So he ordered about 100 machines from a start-up in Sweden and, in October, had them moved to the facility in Iceland. In just a few months, that installation has generated more than $4 million worth of Bitcoins, at the current value, according to the company’s account on the public Bitcoin network.

At the end of each day, the spoils are divided up and sent to Cloud Hashing’s customers. Last Wednesday, for example, the entire operation unlocked 225 Bitcoins, valued at around $160,000 at recent prices. Cloud Hashing keeps about 20 percent of the capacity for its own mining.

Yikes!


And finally, a reporter gets a Bitcoin gift, and immediately gets robbed because he doesn't know how it works:
http://www.businessinsider.com/bloomberg-matt-miller-bitcoin-gift-stolen-2013-12

While on air, Miller surprised Bloomberg anchors Adam Johnson and Trish Regan each with $20 worth of Bitcoin.

But as Johnson received the paper gift, he briefly exposed the QR code (see above). This act was effectively like sharing a bank account and PIN number.

Immediately, someone lifted the QR code and stole the $20.

This morning, Miller reported that he had engaged the thief — someone who goes by "milkywaymasta" — on Reddit.

Here's "milkywaymasta":

I was watching bloomberg where they are doing the "12 days of bitcoin". The guy that is hosting the series gave bitcoin gift certificates to the other two hosts. One of them opens up the certificate to reveal QR code of the private key. They then proceeded to show a closeup of the QR code in glorious HD for about 10 seconds. Hilarious.
...
I took it, it was only $20 worth. It was exhilarating nevertheless. I'll send it back once Matt gives me a new address since someone else can sweep the old one. A segment on Bitcoin security and the importance of NOT showing the private key and also BIP0038 (Password Encrypted Private Keys) Wallets will be more than enough compensation. Blockchain confirmation and Public key of where i sent the bitcoin.

 

[Silurian]

We should adopt leaves as currency at least you can compost them if there is inflation.

 

[Archbob]

No, it's a refutation of his point.

No, its really not to anyone with common sense.

 

[Crezth]

No, it's a refutation of his point.

If you really believe that, honey.

 

[Zelig]

No, its really not to anyone with common sense.

Logic > common sense.

If you really believe that, honey.

My beliefs have proven to largely be sound.

 

[Archbob]

The total amount goods that can be bought is more than the total amount of the goods that can be bought with most other currencies.

Most goods(like drugs) that can be bought with bitcoin aren't that useful to people who aren't interested in crime. You can't do as much with bitcoin in any particular area of the world whereas with local currency, you can buy what you need everyday. As least with Lilagies or whatever, you can buy yourself everyday goods in swaziland. There isn't anywhere on earth where you can get by day to day with bitcoins. They are pretty useless.

 

[Crezth]

My beliefs have proven to largely be sound.

No, yeah, "proven" is a pretty cool word. I like that word too. Still, you should probably use it correctly.

 

[Zelig]

Most goods(like drugs) that can be bought with bitcoin aren't that useful to people who aren't interested in crime. You can't do as much with bitcoin in any particular area of the world whereas with local currency, you can buy what you need everyday. As least with Lilagies or whatever, you can buy yourself everyday goods in swaziland. There isn't anywhere on earth where you can get by day to day with bitcoins. They are pretty useless.

There isn't anywhere on Earth except for Swaziland you can get by day by day with Lilangenis. The aggregate usefulness of Bitcoins for the billions of internet-connected people is greater than the agregate usefulness of Lilangenies to the million or so people in Swaziland.

No, yeah, "proven" is a pretty cool word. I like that word too. Still, you should probably use it correctly.

I have. Do you have anything relevant to add?

 

[madviking]

There isn't anywhere on Earth except for Swaziland you can get by day by day with Lilangenis. The aggregate usefulness of Bitcoins for the billions of internet-connected people is greater than the agregate usefulness of Lilangenies to the million or so people in Swaziland.

this isn't saying anything

 

[Archbob]

There isn't anywhere on Earth except for Swaziland you can get by day by day with Lilangenis. The aggregate usefulness of Bitcoins for the billions of internet-connected people is greater than the agregate usefulness of Lilangenies to the million or so people in Swaziland.

But you can get by with just having Lilangenis in Swaziland, there isn't any country on earth you can live your everyday life with bitcoins, they are useless pretty much everywhere. Your "aggregate usefulness" doesn't mean anything because you can't buy common everyday goods with them anywhere and you are not at every place on earth at the same time. Your arguments are simply ridiculous.

 

[Silurian]

If I have $100 or 100 Euro ( and yen and some others) in my pocket I can walk into many shops in central London and buy a pair of trowsers.

Dollars, Euro and Sterling are widely accepted outside their countries of origin. When I have been in a bar in Skopje and have run out of Denar they offered to accept £10 but said that I would be better going to the change office 100m away. Since I did not want to spend five minutes changing £10, I went to the ATM and withdrew 10000 Denar from my UK sterling bank account which took only three minutes including walking. Bitcoin is too slow for me.