Posted on 12/21/2013 8:55:31 PM PST by narses
In 2009, Satoshi Nakomoto (possibly a real person, possibly a pseudonym for one or more hackers) invented Bitcoin, the first peer-to-peer currency. Bitcoin, which works along the same lines as the Bittorrent network you might use to download movies and music, isn’t the first online currency. Linden Dollars, the unit of exchange in Second Life, are widely traded and regulated by game's maker, Linden Lab. Nakomoto’s innovation was using math-heavy cryptography techniques to create a medium of exchange that doesn’t require a central authority or physical tangibility (like gold) to deter counterfeiters and regulate the money supply.
Each time bitcoins change hands, so does a transaction history encoded in a string of characters. This “hash value” or digest can be decoded by anyone with sufficient computer power and time to devote to the effort. When bitcoins are exchanged, a digest is broadcast to the network of users, a participant does the work of decoding the transaction history, and other users quickly confirm their history is accurate. (The decoders earn a 50-bitcoin bounty for their work.) This happens about once every 10 minutes. Everyone who holds the currency agrees on who owns what, which ensures people can’t copy-and-paste their way to millions or defraud other users without the whole network agreeing that it happened.
In other words, Bitcoin isn’t just a currency, it’s a massive experiment in group trust. It’s also a hint of the financial system to come and, ultimately, a scam.
You probably heard of the digital cash after it was rocked by sudden changes in value. A few weeks ago the value of the bitcoin briefly plunged to negative eight cents to the dollar as hackers crashed exchanges and digitally ransacked electronic wallets to the tune of $9 million. A single victim claims that hackers absconded with some 25,000 of his bitcoins, worth, absurdly, approximately $375,000 at present dollar-to-bitcoin exchange rates.
That’s a crazy amount of money to have stolen by someone essentially copying a file from your hard drive. And that’s just the beginning of what’s happening in the world of Bitcoin, which combines enough hackers, monetary policy cranks, and mysterious Japanese corporations to populate a Neal Stephenson novel.
Bitcoin is a libertarian’s dream come true: a steadily expanding money supply without the state getting in the way of the sweet mechanics of the market. The money changes hands without transaction fees to corporations or government tracking. That’s why Bitcoin’s most ardent supporters are folks like gold-standard advocates and hard-core Wikileaks partisans. As interest in the currency grows, tech-savvy investors have jumped into the mix, speculating with bitcoins and profiting as demand increases; early adopters reaped returns as large as 1,000 or 2,000 percent.
There are nearly 7 million bitcoins sloshing around the Internet, worth over $100 million. Should you jump in the pool? I wouldn’t recommend it.
So far, you can’t buy anything with bitcoins that you couldn’t purchase more easily with cash or a credit card. Despite rumors that Bitcoin was creating an online Hamsterdam where anonymous users could sell drugs and lord knows what else, Bitcoin isn’t truly anonymous unless you’re already taking some relatively advanced anonymity steps. Even then, Internet forensics could likely track you down.
More problematically, the economics don’t quite work. Currencies are most valuable when lots of people trust and use them frequently. But PayPal has refused to convert bitcoins to cash, and major exchanges like MtGox have fallen to hackers. A currency that you can’t convert into anything else isn’t worth, well, anything.
But the biggest problem is that, despite its anarchic design, the system presents a huge opportunity for big fish to take advantage of the Internet everyman. Ben Laurie, a respected web security expert and cryptographer, makes a compelling case that Bitcoin won’t work because it accrues such a huge advantage to people who can bring the most computing power to bear on clearing transactions. “I mean, it’s nice for the early adopters, so long as new suckers keep coming along,” he concludes. “But in the long run it’s just a pointless waste of stuff we can never get back.”
Most worrisome is the opportunity for collusion: If any single person or group controlled a majority of computing power in the network, they could rewrite the transactions to take your money. Bitcoin relies on the growth of the network to outpace any single node’s ability to control the bulk of the processing power, but one mining collective, deepbit, currently clears more than a third of all transactions. Already, hackers have used botnets, online networks of computers, to increase their ability to process transactions and mine bitcoins.
These dynamics make watching Bitcoin a lot like watching monetary history in fast-forward. Timothy B. Lee, a tech journalist, paints a convincing scenario in which Bitcoin nodes band together to seize control of the network, becoming the equivalent of online banks as they provide transaction services to everyone else. And if those banks get together to regulate the supply of money, well, that’s where central banks come from.
Ultimately, all money is based on trust. Aside from the folks who prefer to base the value of their assets on the hard work of Russian gold miners, most Americans trust dollars because we have some sense that the U.S. government isn’t going anywhere and is somewhat accountable to us. It’s hard to trust a monetary system concocted and managed by anonymous hackers who aren’t answerable to anyone.
Bitcoin still offers a glimpse of a future in which the dollar is digitized: No more wasted money printing paper and coins, and instead of stimulating the economy with handouts to banks, the government could just download money onto your USA Cash Card. But we won’t want to cede control of our future currency to profit-seeking financial companies (the main advantage of Bitcoins today is their fee-free exchange) or give the government any more ability to track our purchases than they do with cash. We’ll want a decentralized peer-to-peer monetary system that combines the advantages of Bitcoin with the purchasing power of the dollar.
Assuming, of course, that the dollar has any purchasing power left by the time we want to digitize it.
Uh... Yes it is.
Only by badly abusing the word “fiat”. You are free to any word set you want to use, but if you redefine words to fit your opinions on what they ought to mean, then you no longer have any ability to communicate in a meaningful fashion.
Not all currency is the same, nor are all exchanges of value currency. Your claim that all monies are “fiat” appears to equate all monies as being the same, and that bitcoin is no different than any other medium of exchange.
If that is a correct understanding of whatever abtruse point you are trying to make, it is simply false to fact.
The guys at the top of Bitcoin have a neat gimmick. Some dimwit will eventually invent a virus that destroys the data necessary on each hard-drive to access and use their individual Bitcoins. Since there is no back-up or extra pin number involved....the money kept in such reserves will simply stay in the pot of those who invented it.
One of many flaws in the phantasmal scam.
All currencies depend utterly and only on their -perceived- value. If you want to buy a canoe from a remote Amazon tribe and all you have are gold coins, you may be out of luck. It may be that gold has no intrinsic value to them at all. No currency has intrinsic value— that’s what makes it currency and not barter. Trading for things of intrinsic value is barter. Currency is just a convenience invented to make markets more simple and prevent us all from having to carry a bunch of goats and pigs (things of intrinsic value) around every time we want a loaf of bread or a pint of beer.
All currencies depend utterly and only on their -perceived- value.No kidding, really? That is not the same as claiming that they are all "fiat" currencies. Nor does it mean that a dollar is the same as a peso or a lump of coal.
Time will tell about Bitcoin. There is no doubt the US Dollar is on the decline and will be confirmed worthless. The Political class has succeeded in destroying the wealth of our once great nation. I love America, better hedge your bets with Bitcoin as it is unstoppable.
That's not the way it works. If a virus destroys the keys to your bitcoin, they are no longer spendable and effectively lost. So the "guys at the top" won't have access to them either.
Btw, you can indeed backup your keys, so the virus scenario isn't a show stopper.
Nobody said they’re the same. Dollars and pesos are different, but they are both currencies. Coal is a commodity. Trading something for a ton of coal is barter. Like trading a chord of wood, an hour of massage, or a 57 Chevy. Those are all useful things to trade with, they’re difficult to carry in a wallet. Instead we accept some kind of fiat (or substitution) in place of the barter item for a transaction. But all currencies are a substitution (fiat) for some equivalent barter value. That’s the definition of currency. It stands in place of, or in fiat for, some valuable thing. It works only because the vendor reasonably believes they can also trade with that currency for some still other thing.
There is no doubt the US Dollar is on the decline and will be confirmed worthless.ROTFLMAO!
So what ARE you trying to say about bitcoin?
I’m not saying anything about Bitcoin. Frankly I don’t understand it well enough to have an opinion one way or the other.
What makes Bitcoin a scam is not that it is a private representation of value for people. It is the fact that it is only exists in a medium that the US federal government can shut down at the press of a button. When bitcoin challenges the Obama federal reserve Obama has the internet kill switch and goodbye bitcoin. Anyone who things they have protected assets in the bitcoin world is a fool.
I’ll stick with precious metals: lead and brass to protect the silver and gold, thank you very much.
You should really get off the floor and do something to protect your wealth if you have any.
Over 17 Trillion in debt and climbing, while you’re laughing your ass off you may also like to extract your head from it.
This is a simple mathematical equation, The Dollar will lose it’s status as the worlds reserve currency. The Chinese hold large amounts of US Dollars and are dumping it into Bitcoin to save their fortunes. The devil they know is spiraling down and they are willing to take a chance on the future of Bitcoin.
As someone who holds US Dollars it saddens me, we have been sold down the river they the lying scum on both sides of the isle. I would suggest that you put 2% of your holdings into Bitcoin as a hedge to fall back on..... you know in your heart the Dollar is on the way down, it’s not a matter of if it is a matter of when and it will happen fast!
Then it’s being run by incompetents like the Fed.
Just a bit of a ping
FRNs are not a good store of value.
/johnny
FRN’s have declined in value, but our overall wealth and individual household wealth has increased geometrically.
Bitcoins have a standard deviation far, far beyond anything acceptable to anyone with any numeracy in them at all. They are a fraud on a massive scale.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.