Posted on 01/15/2014 8:01:05 AM PST by SeekAndFind
The big online retailer Overstock.com now accepts payment in Bitcoin. That's good news for lovers of liberty because Bitcoins give us an alternative to government-controlled money. Bitcoins are a currency created by anonymous, private tech nerds, not by government.
Governments don't like competition, and our government sometimes bans competing currencies. But as more of us use Bitcoins, and more businesses accept payment in Bitcoin, it becomes harder for government to dismiss the currency as illegitimate, or ban it.
There are two advantages to Bitcoin.
First, it's harder to trace transactions back to people who make trades. I don't particularly care about that, because at the moment, I don't hide anything from my government.
But I do fear government destroying the value of my dollars by printing more of them, the way governments in Germany before World War II and in Zimbabwe in recent decades did, forcing people to make trades using wheelbarrows of nearly worthless bills. Given how my government spends money, and the way the Fed enables this by buying trillions in government bonds, I fear my dollars may someday be worth pennies. So I bought Bitcoins.
Bitcoins are digitally created -- or "mined" -- at a slow, fairly predictable rate. An incomprehensible (incomprehensible to me, anyway) computer algorithm limits their number.
"Bitcoins are not controlled by anybody," explained Mercatus Center senior research fellow Jerry Brito on my TV show. "It's a new Internet protocol, like email or the Web ... a digital, decentralized currency that allows you to exchange money with anybody in the world fast and cheaply without the use of a third party like PayPal or Visa or MasterCard."
I bought Bitcoins even though I don't understand how Bitcoin mining works. I also worry that someone will hack into my Bitcoin account and steal my money, or maybe hack into the whole system and devalue Bitcoins by creating millions of new ones.
But risky as this new currency may be, I still trust it more than I trust politicians. When my fellow baby boomers demand our promised Medicare payments and discover that government promised trillions more in benefits than it can ever pay for, I assume politicians will print dollars until they are nearly worthless.
So, I put my savings into Bitcoins when they sold for $140 each. I was late to buy -- smarter people bought for much less. But today each Bitcoin is worth more than $800. So, yippee for me! I'm so glad I put all my savings into Bitcoins.
OK, I didn't really. It's just (SET ITAL) part (END ITAL) of my savings -- but it's good to hedge against political venality!
The biggest risk to private currencies may be that governments will become jealous of how well these upstart forms of money work. If people all over the world decide to trade in digital currencies, it will become more obvious than ever that government isn't what makes economic activity happen.
It will also be harder to trace -- and tax -- people's economic activity. Government doesn't like to get sidelined. To its credit, the German government announced that it recognizes Bitcoin as a legal alternate currency.
The U.S. government flexed its muscles by warning that it has the right to regulate Bitcoin transactions. The FBI already shut down a website called Silk Road that accepted Bitcoins as pay for services both legal and illegal (like drugs). Sen. Chuck Schumer, D-N.Y., called Bitcoin "money laundering" and demanded a crackdown. That's not surprising, since Schumer wants to ban lots of useful things, like energy drinks, high-frequency stock trading, free-market wages and 3-D printers that can make guns.
So I'm glad Overstock.com and other businesses are out there, reminding people that law-abiding citizens use Bitcoins to buy legal things. Last month, I used them to buy Christmas gifts.
But Bitcoin's legitimacy shouldn't depend on whether people do things with it that politicians consider wholesome. When government restricts drugs, online gambling and other popular activities, it just makes anonymous, hard-to-trace currencies more popular.
Well, according to Ric Edleman (? financial guy), there are only 21,000,000 bitcoins authorized. Like any barter system, one wonders who got to “authorize” this and who is the new “bank” which “controls”. There are evidently about 6 issuers of bitcoins, the original being some Japanese outfit (okay, don’t hold me to this number...I’m generalizing) which means all we really have here is another form of “currency” managed by no one you know or can control (sound familiar?).
This one, however, requires one pay US dollars to get into the game and then forces you to hang on while they decide what the radical fluctuation in value is going to do (sound familiar?) Bitcoin used to be valued at $ 10 and is now selling at $ 1700?, or thereabouts. But, this is just another barter system with a few players. And, one is left to hope the valuation is stable or up from where they initially entered. Otherwise... But, the volatile fluctuations make bitcoin less reliable than the normal “barter” system of dollars. Don’t misunderstand me, I am not some government agent promoting this system. I am just saying it is no different, perhaps worse.
Barter systems are all flawed. They have “players” or “owners” or “director” who counterfeit the “account balances” or “exchange tokens” to enhance their own situation. This is happening, or will happen, to bitcoin. And, watch the IRS come rolling in with a hundred regulations to monitor this. These aren’t dummies, folks. The caught UBS and they caught Sharpton (but probably didn’t prosecute him) and they will catch bitcoin. In the end, all we have is another system operating parallel to dollars that sounds sexy.
How does one buy groceries and electricity? Well, when Safeway begins to take bitcoin, are you going to carry your computer into the store? Hand them your phone? Take the change in “dollars and cents”? ooops.
FRiend, It has been awhile since I’ve seen this much wrong in just one post. Just sayin’ you need to do some checking... :)
I have no intention of buying bitcoins. I could see myself using a paypal-type service for online purchases that would instantaneously convert your payment to Bitcoin and transfer it to the vendor. The volatility of Bitcoin is irrelevant if you are not exposed to it.
The Serious Disadvantages of Bitcoin
http://wallstreetpit.com/102032-the-serious-disadvantages-of-bitcoin-2/
No one has ever been able to tell me where the real money goes when you buy them. Maybe someone on this thread will know.
Exactly...
Well, fix away. The information I heard from Ric Edelman (who now owns several bitcoins) seemed plausible and reliable. But, we are all willing to learn. Please supply the correct data.
Can you tell me where the real money goes when someone buys Bitcoins?
For the current price: https://www.mtgox.com/
I read through the topics quickly and find nothing that makes my “barter” comments incorrect. You, however, found all of them incorrect...please describe how bitcoin is not just another “barter” system creating its own currency guarded by a few “owners”.
In the first place, Bitcoin is guarded by thousands and thousands of "owners" not just a few. Bitcoin or any system of exchange for that matter, simply put, is a system of accountability. With Bitcoin, it consists of a distributed public ledger system all get to see; with FRNs, the Fed keeps the ledger and few get to see it; with gold, it's possession.
Each has advantages and disadvantages depending upon who has control and etc. A "barter" system is the direct exchanging goods or services for other goods or services without the use of a "medium" of exchange (i.e., currency).
Well, Dutchboy, its hard to take any of your argument seriously when there is so much in error. First, you describe Bitcoin as a barter system, but a barter system is the direct exchange of goods/services without the use of money, or more generally a medium of exchange. You are not participating in a barter system when using bitcoin or when paying for things with USD.
Bitcoin is not a centralized system with one or a small group of authorities authorized to issue bitcoin. Additional bitcoin are self issued about every ten minutes by Bitcoin computer nodes that do the processing necessary to secure the network. The number of bitcoin issued is halfed about every four years, which results in the figure of 21,000,000 bitcoin maximum you quoted. Again, there is no central authority, in Japan or anywhere else, which controls this.
Bitcoin has never been valued at “$1,700 or thereabouts” it topped out around $1,200. Its value fluctuates and is determined by market bids on the Bitcoin exchanges, not by “they” deciding what the value is. Current market values can be checked at various web sites like
The volatility of bitcoin is certainly unsettling and makes it less than ideal for everyday use. Bitcoin users hope that as the system matures the volatility will settle down. We’ll see. In the meantime, merchants deal with this by accepting and converting bitcoin to local currency immediately. They price in local currency and provide a bitcoin total (if the customer want to pay with bitcoin) based on current market value at checkout.
Bitcoin cryptographically secures the distributed transaction ledger (all nodes maintain a copy). It is not currently feasible to counterfeit an account balance/bitcoin tokens. If someone comes up with a way to break the crypto algorithms then this would change. Regulation by the government is one of the things most likely to ruin Bitcoin and other alternate currencies. For now they seem content to regulate the exchange of bitcoin for local currencies.
Paying for groceries with bitcoin is not terribly difficult. At checkout you are presented with a scannable QR code with the payment address and amount. You scan that with your phone, verify the amount and touch “send”. The payment shows up in the Bitcoin system in seconds and you get your receipt.
Database
Perhaps you should re-read my posts. Bitcoin is, in fact, a barter system. Look at all of the barter systems started over the last hundred years; they issue “chits” or record your contribution of goods or services on their “books of accounts”. This is what makes barter systems so dangerous...you are relying on a “private sector” group to not issue counterfeits or hack others’ accounts. The bitcoin “system” is no different.
And, it is the demand which controls the “value” of this chit and it is interesting that all of you refer to its value in “dollars”. Hmmm. Why is this necessary (look at the bitcoin site, it gives current value in US$). And it is Federal law for all transactions affecting “values received for values given” to be reported on your Federal tax return in US$. Sooner or later it is tied right back to the system you guys hate. Hmmm. Go and play with your bitcoins, but you are barking at the moon, my FRiend.
It's not rocket science. If I grow pigs, when I sell one, I pay taxes on the income less expenses for raising the pig. Likewise, if someone mines bitcoin, when they sell it or buy something with it, they pay taxes on the income less expenses to mine it.
If I invest in pork belly futures and later sell them at a profit, I pay taxes on the capital gain. Likewise, if I buy bitcoins and later sell them at a profit, I pay capital gains on the profit.
Any CPA worth her salt should be able to calculate what you owe in taxes as long as you keep good records, as the law requires - no?
Yes, I understand more than you can imagine...and when the IRS has a couple of bitcoin audits producing adjustments to income, congress will gin up a slew of regulations to "help" the taxpayer comply. Don't think vendors that deal in bitcoin will not be forced to surrender the names of their bitcoin customers. Forms 1099-B,C,MISC,INT,DIV,R,S are the products of the evolution of various "systems" which are now compelled to report with "good records". Bitcoin will be just as regulated in two years time. So what have we gained? A system that still transacts benchmarked by the US$, but operated by private persons and creates an entirely new level of surveillance. Sounds like a great innovation.
Well now, maybe you are being to understand! It's private enterprise verses central control - is there any doubt who the final winner will be? :-)
For additional edification: Overstock CEO Slams "Unethical" Krugman; Hopes "Bitcoin Destroys Central Banking"
Your previous posts were not very helpful wrt Bitcoin as a barter system, as they simply asserted this as fact along with your concerns about barter systems. This last post was more helpful.
Notwithstanding 100 years of “barter systems” history, I would describe these systems as private markets with a private unit of account/exchange (eg private money). One would certainly be concerned with the honesty of the private group running such a system as they have complete control over the private money. Perhaps your insistence that Bitcoin is a barter system is that the IRS will want Bitcoin users to account for their activity as such. Fair enough, but IMHO calling these systems barter is misleading.
You say that Bitcoin is the same as these private markets. But Bitcoin is not controlled by some small private group. It is controlled, if you can call it that, by thousands of independent nodes, each enforcing the rules of the system on a publicly available ledger. One of these nodes, or even a large group of nodes cannot simply create and fill accounts to their benefit. This is substantially different than these private markets.
Perhaps I should have used the /sarc tag. I absolutely do not understand (read that, "see any point to") the interest in bitcoin. Even our IT guys said today that it is a total gimmick that they would never entertain. We simply have yet another "currency" system operating by barter to establish tradable value still benchmarked by the US$. Enjoy, my FRiend, but count me out.
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