Will Legitimacy Spoil Bitcoin?

New submitter F9rDT3ZE writes "Salon writer Andrew Leonard examines the U.S. Treasury's Financial Crimes Enforcement Network's (FinCEN) first 'guidance' regarding 'de-centralized virtual currencies,' noting that Bitcoin's supporters call it a 'currency of resistance,' while others suggest that 'the more popular Bitcoin gets, whether as a symbol of resistance or a perceived safe haven in financially troubled times, the more government attention it will inevitably draw, and the more inexorably it will be sucked into existing regulatory structures.'"

That's the price you pay

[allaunjsilverfox2]

No matter what you trade, if it has value, the state will look to control it's function.

Transactional Currency, not Safe Haven Storage

[billstewart]

Unlike gold or silver, bitcoins don't even have a vague amount of price stability that lets them be a store for value. They're purely transactional currency, designed to be hard enough to make that their value probably won't change very much very fast, but easy enough to make that the quantity can expand to support a growing market (at least for a while.) So they're useful for online drug deals, where the potential currency risk is a lot smaller than the profit from making convenient transactions possible, but they're not something that it makes sense to stash in your mattress as a hedge against inflation. Their value isn't backed by a useful commodity, like gold or oil, or by the ability of a government to tax its subjects, they're just backed by the fact that they're designed to be useful for some kinds of transactions that might not happen otherwise, and by the existence of exchanges where you can trade the things for cash at today's price, which is random but usually somewhat close to yesterday's.

Re:Transactional Currency, not Safe Haven Storage

[Anonymous Coward]

Money hasn't been based off of gold or silver, or any "real" good for a while. The value of money is based off the faith that it can get you something real.
en.wikipedia.org/wiki/Fiat_currency

Re:Transactional Currency, not Safe Haven Storage

[tsotha]

Dollars aren't based on gold or silver either, and unlike bitcoins the decision to create dollars happens through a totally opaque process that has no basis in economic reality. If we had a commodity backed currency I would agree there's no need for bitcoins, but we don't. Dollars are backed by and endlessly increasing supply of debt, which guarantees huge fluctuations of (perceived) value over time.

Legitimacy

[Grashnak]

I can't question its legitimacy until I see some evidence that it has any.

Re:Transactional Currency, not Safe Haven Storage

[Anonymous Coward]

You have a PROFOUND ignorance of economics, governance and politics.
Or, you've been steeped in the Fox Network view of the world.

Re:What is their to spoil?

[Anonymous Coward]

The US dollar is indeed being devalued, but bitcoin is very nearly totally worthless.

Can I pay for my food at the grocery with it? No.
Can I pay my rent with it? No.
Can I pay ANY of my monthly bills with it? No.
Can I spend them at the local used game store? No.
Can I buy any of the stuff I buy on Amazon.com with them? No.
Can I deposit them in my 401k and have them managed with the rest of my assets? No.
Can I trade them to my next door neighbor for his help fixing my car? No.

They're worthless in the real world.

Re:bitcoin's value is for it's utopian idealizatio

[circletimessquare]

i know the answer won't be found in the realm of financial kookery, that's for sure

Re:Quantum computing and bitcoins?

[Kal Zekdor]

The difficulty of mining bitcoins (and hence the speed that a given set of hardware mines bitcoins) is directly proportional to the amount of computing power mining bitcoins. If the amount of computational power in the system goes up, that means that (in the short term), the amount of bitcoins mined in a given period goes up. Every X number (I forget exactly how many) of blocks (the basic structure of bitcoin as a currency, currently each block "creates" 25 BTC, given to the block's solver. The amount of BTC earned per block is halved at distinct intervals, but that's not relevant here.), the bitcoin system (i.e., each client that is creating these blocks, as there is no central server) analyzes the length of time it took solve all X blocks. If that time is less than Y (again, don't recall the exact number, but I think it was a week), then the difficulty of mining blocks is increased by a proportional amount. If it was greater than Y, the difficulty is decreased.

What this all means is that if someone were to bring an astronomical amount of computing power to bear on mining bitcoins, the difficulty of mining bitcoins would automatically compensate, and the addition of new bitcoins into the marketplace would proceed at the same rate. Granted, the person at the head of all this computing power would be the recipient of most new bitcoins, but the currency would not be destabilized (at least through computing power alone.) There would be other things said person could do to destabilize bitcoins, though, through either Financial or Technical means. They could hoard all BTC they mine, causing the price of BTC to rise. They could sell BTC they mine at ridiculously low prices, causing the price of BTC to plummet. If they comprise more than 60% or so of all computing directed at bitcoin mining, they could hijack the blockchain, and would be able to spend bitcoins they don't own, or double spend their own bitcoins.

I'm fairly sure that anyone who attempts to hijack bitcoins through raw computing power would end up spending more on said computing power than they would earn from bitcoins. So unless a malicious billionaire or an intrepid hacker organization with a few supercomputers in their botnet decide one day that they really don't like bitcoins, it doesn't seem likely to happen.

Re:bitcoin's value is for it's utopian idealizatio

[circletimessquare]

i'm not entirely sure when faced with the same mental vomit over and over again why it is my responsibility to find a new creative path to sanity for the crackpot. it is the crackpot's responsibility to make fucking sense

Re:That's the price you pay

[gd2shoe]

You can't spend an "invalid bitcoin". There is no such thing as counterfeit or otherwise invalid currency in bitcoin. Perhaps you should study what you are trying to mock and deride.

With the right hack it is possible to have two copies of a bitcoin in circulation. It's possible to make this very hard to do, but it is impossible to prevent in an absolute sense.

You have a bitcoin. Great! Now how do you know that it's unique? The transaction was signed? Fine. But how do you know that it was legit before you received it?

No matter how you slice it, there must be a central authority to indicate which are real, and which are false. A hack there can cause all flavors of theft, fraud, and forgery. If you have no central authority, then you risk fracturing your money supply at the exchange level, with each exchange becoming its own authority.

Re:That's the price you pay

[Anonymous Coward]

With the right hack it is possible to have two copies of a bitcoin in circulation.

It's only possible if you have more processing power than the rest of the people processing bitcoin transactions combined.

It's all fun and games...

[gatkinso]

..until it becomes actual money.

At that point the suits take control, and there is absolutely nothing you can do about it.

Re:That's the price you pay

[shaitand]

"You have a bitcoin. Great! Now how do you know that it's unique? The transaction was signed? Fine. But how do you know that it was legit before you received it?

No matter how you slice it, there must be a central authority to indicate which are real, and which are false. A hack there can cause all flavors of theft, fraud, and forgery. If you have no central authority, then you risk fracturing your money supply at the exchange level, with each exchange becoming its own authority."

Having come up with a decentralized P2P solution to this problem is the reason people are so excited about this Bitcoin thing. ;)

Every piece of every Bitcoin ever to exist has a transaction trail from it's point of origin to the current address at which it resides. Verifying these trails is what miners do. It isn't simply that you send me some bitcoin and I trust it or I trust the hash. You send me Bitcoin and the network begins validating the transaction from the point it was mined to you to me over and over again with it eventually becoming part of that trail.

In order to have even the tiniest minute fraction of fake Bitcoin you'd have control >51% of all the mining power. The more people mining, the harder that feat is to accomplish. The Bitcoin network can determine if someone actually has >51% btw.

Re:That's the price you pay

[shaitand]

Party B would never need to sue Party A. The network would reject the fake transaction and it would never become part of the publicly viewable audit log. If you present the relevant address any judge could verify a transaction or lack of one along with anyone else who cared to.

The anonymity that people talk about with Bitcoin comes from the fact that there is nothing to indicate who any particular address is controlled by. The actual flows of coins between the addresses are all public record. That is why people use coin tumblers. With a coin tumbler you can get Bitcoin back out that is unrelated to the coin you put in. Even then, large transactions and conspicuous sums can be used for forensic accounting.

Re:That's the price you pay

[demonlapin]

This is one of the central insights of a book entitled Seeing Like a State [amazon.com], basically that all sorts of disastrous policies have been implemented not because they were likely to be successful at solving some particular problem (e.g., Stalinist collectivization of agriculture gave peasants a certain area of land, regardless of its quality, rather than the traditional division of best-medium-poor lands in roughly equal quantities to each family in a village even though this made it almost impossible for an outsider to identify who owned what) but because they made people's actions more visible to the state and thus more controllable (and more easily taxed).

Re:That's the price you pay

[Anonymous Coward]

The death knell to bitcoin will be mass adoption. When millions of users are making transactions every day the miners will be unable to keep up with the transactions and the network will slow to an even more glaceral crawl. Already it often takes 20 minutes or more to validate a transaction.

Not to mention that the entire blockchain grows exponentially longer with every transaction and is already at 6GB [blockchain.info]. A few more years and it will be hundreds of terrabytes.

Re:Transactional Currency, not Safe Haven Storage

[shaitand]

Yes but if the Bitpenny is practically used like the dollar today that means 1 BTC is worth $100. This solves the same problem. We always have enough units of value to cover the volume of transactions being conducted in Bitcoin. Doing so indicates the economy has grown. If you do that by adding currency you create units by stealing value from all the existing currency units and then picking and choosing who to give them to. If you do that with a fixed amount of currency and create new units through division then you increase the value of the existing currency and thereby make using the smaller units feasible. The value is given to those who already hold currency instead of taken from them.

If the Bitcoin market continues to grow there will come a time when very few people are wealthy enough to have an entire whole BTC in their wallet.

Re:That's the price you pay

[vux984]

Same applies to VISA transactions. But nobody would ever commit 10^5 visa micro-transactions a day either for the same reason. Transaction fees would make it utterly pointless and counter productive. You'd inevitably switch to some sort of internal coins/points system for the majority of transaction and transact with VISA once a month or so.

Even iTunes already witholds processing puchases as they happen, and aggregates a day or two worth all at once to minimize their fees.

 

Re:That's the price you pay

[tehcyder]

The alternative way of looking at that is that the State is simply the legislative and administrative expression of the democratic will of the People, and that if goods are to be owned jointly and equally by all the people, then of course you need to make sure that no one is sneaking more than their fair share; and that, even if you don't have a communistic system and there is still private property, you need to be able to identify assets for tax and redistribution.

I don't imagine this interpretation will go down very well on slashdot.