With Euro Zone Problems, Bitcoin Experiencing Boost In Legitimacy 430
derekmead writes "Despite being used for drugs and beef jerky, Bitcoin is finding legitimate purposes. Bitcoin's decentralized convenience means international efficiency, in areas where local restrictions on money transfers to foreign companies make legal businesses cumbersome. 'I've been able to have cash in my bank account in a matter of hours using Bitcoin, rather than three days with traditional banking,' one British businessman in China told Reuters. In embattled Europe, Bitcoin offers some a viable alternative against central banks, said a Greek owner of an island bar and restaurant who accepts payment in Bitcoin. 'I don't put money in the banks. I trust the euro as a note, but I don't trust banks. I don't want them making money out of my earnings.' Indeed, Europe's financial woes are caused an unprecedented surge of interest in the alternative currency, as the continent loses economic credibility with each new bailout, according to a report by the Financial Post."
Re:....someone get that link... (Score:5, Informative)
Not necessarily true. Banks are only insured so much against failure. Including, for example, if they hold massive amounts of loans to construction companies and construction workers in spain and will not be able to collect those loans.
Thus far the Eurozone has, through various mechanisms, organized bailouts of banks to prevent them from collapsing and to prevent bank runs. However, there is not actual insurance system keeping the banks afloat. There's just the implicit expectation that eurozone governments will cough up the cash to keep all their banks from collapsing and taking the rest of the economy with them.
Re:Governments can't inflate the currency (Score:4, Informative)
You are wrong. The "hoarding" argument has been beaten to death. Current evidence shows that people are NOT hoarding the coins: every day, 40 thousand coins change hands on the single largest exchange: http://bitcoincharts.com/markets/mtgoxUSD.html [bitcoincharts.com] This is six times the number of coins created daily by the network (7 thousand).
In other words, people are not hoarding them, but are trading them very, very frequently.
And this is just measuring MtGox's volume. Other trades (merchant sales, other exchanges, etc) are likely doing even bigger volume...
Re:Governments can't inflate the currency (Score:5, Informative)
Inflation is a feature not a bug. In fact, you have listed the main benefits yourself without realizing it.
Imagine a world where your currency didn't devalue. Let's take an extreme example, where your currency actually increased in value. Sounds great, doesn't it? Put money under your mattress and in 10 years time it's worth a lot more than when you got it. Except, how would that work? Let's say that the world produces an amount of goods and services which we'll call X. Let's say we have a perfect economy where people receive money equivalent to the goods and services they produce -- also X. So in year 1 we sell all our goods and services and have X dollars.
The next year we don't produce any more money since we don't want it to devalue. Everyone is expecting the currency to go up in value so they save 10% of what they earned (0.1X) and spend 90% (0.9X). Since there is less money for the same amount of goods, this means that the currency goes up in value. Hurray! Everyone again saves 10%. Now there is 0.19X saved and 0.81X in circulation. Let's do this for 10 years. At that point we have about 0.65X in savings and about 0.35X in ciculation. And the currency is worth nearly 3 times it's original. Hurray! Hurray! Hurray! Let's spend our savings!
But the entire output of the economy is 0.35X and we have 0.65X in savings to spend. If we spend it, it causes the value of the currency to crash dramatically. The problem is that the currency value was being kept artificially high by limiting its availability. As soon as we want to spend it, we're in big trouble.
The point of a currency from an economic point of view is to ease trade. If you can not get access to the resources you need, you can't produce. We want to distribute as much money as we can to people who can use it to produce something. Saving (some call it "hording" to distinguish it from investing) causes massive problems when you reintroduce the money into the economy. So you want to encourage people to either spend or invest money rather than putting it under a mattress.
Another major issue is borrowing. If you have a job to do but do not have the resources you need, you won't produce value. If you have money, you can buy the resources. What do you do if you don't have money? Ideally we want to be able to borrow the money. Remember we want as many people as possible to have money if they are able to use it productively. What happens if we have a currency without inflation?
Let's say I borrowed Y on year one. In the first year I can afford to pay back 0.1Y. But in the second year there is less currency around (people are saving) so I can only pay back 0.09Y. The next, I can only pay 0.081Y, etc etc. By year 10 I can only pay back 0.035Y. I'm paying back the same amount of value each year, but since the currency is deflating, I get to a point where I may never be able to pay back the loan fully.
To avoid this problem, people will avoid borrowing money. This means that they will not be productive and society suffers.
Deflationary currencies are extremely bad. Currencies with moderate inflation are exactly what we want. Our current fiscal problems do not come from the inflationary nature of the currency. They come because of bad loans. Money was lent to people who were not going to be productive with the money (for example they simply invested it in an overstocked property market that was at the height of it's price). Our problems really *are* due to unscrupulous and stupid commercial banks. It is highly regretteble that we were forced to bail out most of them. It is even more regrettable that the average voter can not understand the issue well enough to ensure that the government doesn't allow it to happen again.
No wonder the Greeks think BitCoins are great. (Score:5, Informative)
They'll do anything to avoid paying tax. It's the main reason why their economy is so fucked.
Example: A mate of mine is an RYA (Royal Yachting Association) Instructor, and has been asked to run a course down in Greece, so he has to book some accomodation - decides on a nice 4 star hotel. After he booked, he was called up and told that if he paid in cash it would be half price. There they are complaining of austerity measures, whilst not paying tax.
Re:Beef jerky lolwut? (Score:3, Informative)
Re:Governments can't inflate the currency (Score:2, Informative)
Re:....someone get that link... (Score:4, Informative)
Re:Governments can't inflate the currency (Score:4, Informative)
Actually there was an inflation spike in Spain (and England) caused by South American gold.
Re:Beef jerky lolwut? (Score:3, Informative)
So where BitCoin fits into this is it provides totally untraceable payment for these networks. TOR provides the anonymous communication. There's a network, separate from the one previously described, called The Farmer's Market that was recently busted [ref 1]. While they used TOR for communication, my source told me they used something non-anonymous for payment. I don't remember exactly which service - probably not PayPal, but something similar. And that traceability made it easier to bust the ring.
So yes, BitCoin is being used for drug trade. It doesn't surprise me most Slashdotters would be unaware of this; it's underground as fuck. Welcome to the new millennium: buying drugs has become social-networked and peer-to-peer. (Turns out people will choose not to deal with street pushers and cartels if they don't need to. Now if we'd just legalize a select few substances, we'd really hit the cartels in the balls...)
[1] http://www.erowid.org/general/announce/monthly_2012-04.shtml [erowid.org]