By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Cross posted from Testosterone Pit.
Four years after its creation, folks are still arguing over what bitcoin is: “investment opportunity of the millennium,” “part of a societal revolution,” a security, a currency, a casino token? Whatever. But US regulators now have strategy of killing it as a currency.
The Senate is trying to wrap its brains around bitcoin. A sight to behold. Four years after its creation, folks are still arguing over what it is. For some, bitcoins aren’t even casino tokens (no fancy tokens). These non-physical entities traded on electronic exchanges “would likely be securities,” SEC Chairman Mary Jo White clarified in her letter to the Senate Committee on Homeland Security and Governmental Affairs that is now investigating the matter. And as securities, they would be “subject to our regulation.” So a security, not a currency.
Fed Chairman Ben Bernanke attempted to dodge the issue, but didn’t quite make it when he wrote to the committee that the Fed “generally monitors developments in virtual currencies” – so it’s a currency, not a security? He conceded even that virtual currencies “may hold long-term promise, particularly if the innovations promote a faster, more secure, and more efficient payment system.”
Some sort of “private money” is what the German Ministry of Finance called it in August. Under German law, it could be used to settle multilateral transactions. Creating bitcoins (“mining”) was therefore “private money creation.” This emerged as an answer to MP Frank Schäffler’s query. Any gains from selling bitcoins after one year would be treated as capital gains for tax purposes. So it’s a security, in addition to private money? German banking supervisor Bafin also struggled with it, and finally considered it the equivalent to a foreign currency.
A miffed commenter on a Bloomberg article called it “the investment opportunity of the millennium” and “part of a societal revolution.” That would be the other end of the spectrum.
The Senate hearing on Monday was the culmination of a three-month investigation into virtual currencies, said committee chairman Sen. Tom Carper (D., Del.). “Virtual currencies, perhaps most notably bitcoin, have captured the imagination of some, struck fear among others, and confused the heck out of the rest of us, including me.” He was worried that they could facilitate the sale of “weapons, child pornography, and even murder-for-hire services.”
So you’d expect some saber-rattling by the government officials who’d been asked to testify. But instead, it practically turned into a love fest.
Officials from the Secret Service, the Treasury’s Financial Crimes Enforcement Network, and the Justice Department bragged to the committee about successful investigations of crimes where bitcoin or other virtual currencies were used, including the busts of Silk Road, eGold, and Liberty Reserve. They were confident that they knew how to tamp down on criminal use of virtual currencies. No one expressed outright alarm about the new world of bitcoin.
Since every transaction of every bitcoin is forever recorded and part of the system, Mythili Raman, acting assistant attorney general at the Justice Department’s criminal division, pointed out that “cash is still probably the best medium for laundering money.” And she admitted that “many virtual currency systems offer legitimate financial services and have the potential to promote more efficient global commerce.”
At the word legitimate, bitcoin soared. And I mean, SOARED.
Even if they don’t agree on what bitcoin is, regulators clearly don’t want to go through the hassles of banning it or policing it. So if it’s a “security” where in the end a lot of people will lose a lot of money, so be it. That happens every day with securities.
Yet they are fretting about transactions. It seems they would like to prevent bitcoin from competing as a currency with the dollar. But they don’t want to get their hands dirty. And they found out how to do that. It’s so simple, it’s beautiful: Encourage bitcoin to become so phenomenally volatile with such mindboggling jumps and brutal crashes that no one can afford to use it as a currency to buy or sell anything, licit or illicit.
Taking on the dizzying risks of getting crushed by price swings can be fun for speculators, but they would be debilitating for buyers or sellers. So you want to buy a house valued at $500,000 and pay in bitcoins. You sign the contract on September 19, when bitcoins change hands at $134 each. So the contract specifies that you have to pay 3,731 BTC at closing. Closing was last night, after bitcoin had soared to $900. The transaction price of the house, in dollar terms, would then be $3.36 million. You’d get crushed by a $2.86 million loss on a $500,000 house. You’d never, ever do that again.
Another day, the price could swing the other way, and then it would be the seller’s turn to get crushed. That’s the idea. If regulators can keep it that way, while allowing speculators to play with it and have fun with it and drive the price up and down maniacally, bitcoin will die as a currency that can be used to buy or sell anything.
Turns out, all this drama can actually happen in time-lapse. Not in weeks, but in hours. Yesterday around midnight, after an already crazy run-up, bitcoin traded for $575. Then, triggered by the word “legitimate” or some other word, or something in the water, it spiked to $900 for the briefest moment at around 5 p.m., only to crash to $502 by around 4:45 a.m. today. It since jumped to $745, and now, as I’m writing this, re-crashed to $640 $599 $489. You can’t do business with a “currency” like that. You can only have fun with it or lose your shirt. And the Fed, the SEC, and a myriad of other regulators can pat each other, or themselves, on the back.
Far more revealing than Yellen’s congressional testimony were two very important papers by the two most senior Federal Reserve staff economists. The thinking that went into them must have been broadly approved by both Bernanke and Yellen. Read…. Thoughts from the Frontline: Unintended Consequences of ZIRP
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BTC is to be used either for short term means of transfer or a very long term speculative investment.
BTC is a very thin market and the prices you are quoting could be 10 BTC sold at $900 or 10000 BTC sold at $500, there is no market maker in a decentralized currency.
If you’re going to quote a BTC price at least used a weighted average.
People don’t execute transactions based on weighted averages. They trade based on spot prices. Richter’s point is about vulnerability when you want to trade. And thin markets give particularly poor prices if you need or want to execute a large trade in a short time frame. So his use of spot prices is completely appropriate to the point he is making.
We desperately need some high-frequency trading people to jump in and help with price discovery ;-)
Totally impossible. The markets are extremely poorly regulated and simply cannot handle slow trading let alone HFT.
The exchange that handles the majority of the trading is a converted website for trading online Magic: The Gathering trading cards. Not physical cards, trading the cards for the online version of the game.
There’s a history of suspicious buy/sell walls that appear to be market manipulation. It could be an automatic trading algorithm, except for the fact that they vanish instantly even while the trading engine lag is upwards of an hour.
That’s right, you heard me, lag of a minute is not uncommon on these platforms, and during those frantic up-50% down-33% period of volatility the lag can easily hit an hour. The currency itself imposes an overhead of approximately 60 minutes per transaction. This makes it extremely difficult to arbitrage the differences between those exchanges.
Another reason it’s spiking (and another reason there’s huge differences between the exchanges) is that it’s extremely difficult to cash out, so it’s a one-way street for the exchanges. Magic: The Gathering Online Exchange (MtGox) is really shady and their payment processor cut them off for failing to meet Anti Money Laundering rules. They can now transfer a maximum of $10k USD per month to their US customers. That’s not $10k per month per customer, that’s $10k for ALL customers in the US. Last I heard, wait time for withdrawals was up to a year. That really jacks up the price of coins on that exchange – money goes in, bitcoins go out, but it’s impossible to go the other direction.
So good luck designing HFT to deal with those kind of conditions. You might as well design a high-speed Craps betting algorithm.
The most legendary Bitcoin profits accrued to early adopters who bought low or at zero and sold high. Since that initial gold rush, speculators have had to get creative. Committed traders who understand the currency could bet directly in dedicated chat rooms, while others who had the programming knowledge could write scripts to arbitrage between the exchanges. Bitcoin can be exchanged for real-world currencies relatively easily, and it has remained volatile — a single Bitcoin was trading for $237 in April and is now going for around $135. That combination makes it very tempting for opportunists looking to flip the currency for an easy profit.
Of course, profit is never guaranteed. One reason why a pitch like Bitcoin Robot sounds bogus is that purchases still take a long time to process. High-frequency trading in the Bitcoin world is on the order of 30 minutes per transaction. “BTC is simply not liquid enough to carry this out profitably over the long term,” one expert with knowledge of trading algorithms and Bitcoin, who asked not to be identified because he was speaking without his employer’s approval, said in an email.
http://www.theverge.com/2013/9/25/4767768/get-rich-quick-bitcoin-scams-bitcoin-robot
skippy… wheeeee new kid on the block has a toy… everyone rushes to get one… price goes up… everyone has on fad is over and price gets monkey hammered… subprime bits scatter the tubes… en fin~
Bitcoin is a nice realtime simulation of how a small market behaves next to a much larger one with unrestricted capital flows between the two.
Sort of like the out-of-control but backed by central banks OTC/Derivatives market (estimated at 70x world GDP by ISDA) and the open markets in stocks and bonds, valued at about 12x world GDP.
Long Volatility – that is the Future!
+1
The volatility of Bitcoin is a function of its being, at least for the time being, primarily a speculative curiosity.
If ever it came to be widely used in transactions on a scale approaching that of today’s prevalent currencies, I suspect that volatility of Bitcoin exchange rates would likely subside, the reason being that a 10% fluctuation of Bitcoin exchange rates today produces little real economic feedback, but if people actually used it regularly and at least some vendors set prices in BTC, the effects of a 10% swing would quickly lead to a countervailing reaction from markets, akin to how exchange rate policy influences trade flows today.
Since Bitcoins were, from the very beginning, a Ponzi scheme that favored early adopters and hoarders, the volatility actually plays into their hands.
The fundamental essence of every Ponzi scheme is convincing new suckers to sign up. Up until now, the true con men at the top of the pyramid were stuck manipulating the “value” by shoveling small quantities between dummy accounts. Classic penny stock pump-and-dump maneuvers. Now with the Feds putting their thumbs on the scale, volatility has shot through the roof, and arbitrage is a piece of cake. Remember, the first players hardly paid anything to generate those early coins, just a few bucks in electricity. Selling them for anything at all is a profit. These spikes to hundreds and even the $1000 mark is just gravy. The real challenge is maintaining volume: They need a constant demand from chumps to be able to push their junk for real money.
So, anyone else want to line up and get in? At least you’ll be entertained.
Mary Jo White is a goofball. How can something as unsecured as BTC be a security? She’s just setting up a case for capital gains. Bitcoin is definitely a form of commodity – a virtual commodity. And Goldman Sachs and JPM can have loads of fun with it. And not just profits, but think of the BTC derivatives. How cool will that be?
It seems to me that bitcoin advocates are the same type of people who believe ‘the singularity’ is nigh and love to talk at length about how software copyright is the worst thing since the holocaust. In other words well intentioned but ultimately naive techheads who think that the internet and technology in general are going to save the world.
Not only is bitcoin not a threat to real currency and has no longterm future, but even if in theory it did what good will electronic money be when there’s no electricity or internet? Because such a world is very possible in the coming decades. Whatever one thinks of using paper as currency at least it’s something you can hold.
Maybe you’re right. Bitcoin is a kind of mind-f!ck but, to me, it feels right. Why? Because we are entering a period of transition on all levels and Bitcoin indicates that transition and may be a step in that direction as money and securities themselves appear to be more fictional everyday.
Just a word on the Singularity. I don’t “believe” in it like they do over at Google but I do believe that something very much like it is going to happen, assuming we don’t destroy civilization before that, in terms of virtual intelligence. My definition of intelligence is almost diametrically opposed to the Sigularatons’ views but in terms of their narrow definition of intelligence (shared sadly by most people) I believe they are more or less correct.
My question would be, is money (in this context, cash and coin)itself a form of barter, or is it fundamentally different? At the retail end of things, where I live, I give someone a piece of paper and they give me my groceries. If I were giving them bitcoins, or bullets, or booze, would it be, from my perspective, any different?
Money in the form of cash, bank accounts, checks, and debit cards are so useful and valuable because they can be bartered for anything at something like a stable price. They are easy to store, and not hard to take with you. But do they function differently than barter at the level at which most of us live? This gets at the “people can’t eat gold so it won’t be worth anything in a crisis” assertion. Can anybody eat cash or coin? No, they are a medium of exchange, lubricating the system of barter which accounts for most daily transactions by the vast majority of people. Perhaps if we had a better idea of what money does for most of us and what we want it to do the issues that surround our flailing economy would become easier to formulate and answer.
Money has always been an efficient form of barter and it still is–it is an economic toll/utility. But since money became divorced from gold or silver it has become a political tool. The value of money is a result of political forces, IMHO primarily.
Banger says:
And money wasn’t a polictical tool when it was still married to gold or silver?
Don’t read much history, do you?
My original question still engages me: what do we want money to do? From my little perch, all I need and want money to be is a medium of exchange and a store of value. All the other questions seem to be largely irrelevant to those who are not in the investor/speculator class. I understand that my vision of money would gum up the works of modern capitalism, but to my mind the whole system of modern capitalism should be on the table. In my mind, it should be work+ invested savings=growth. Perhaps that is foolish, and it does introduce problems, but are they really worse problems than the ones we face with fractional banking, fractional gold and silver reserves, and QE? I can’t tell from down here, but my guess is that for me, just me, it might be a better way of doing things.
I cannot recommend enough that one read John Kenneth Galbraith’s Money: Whence It Came, Where It Went. It can be found on the internet here:
https://anonfiles.com/file/7401950f3b2717503553dcfb8b51d10a
Another good essay is this one by Steve Keen, especially the section titled “1. Money” with special attention to the passage that begins with this:
I don’t know that I agree with giving all that credit to Schumpeter (it seems to me the ideas he expressed date back to at least to the 17th-century Spanish arbitristas), but I do agree with the gist of what Keen is asserting.
Another must-see is Stephanie Kelton’s lecture on money, where she articulates her theory of the hierarchy of money:
http://www.youtube.com/watch?v=khaypwRG5C0
In the hierarchy of money, I don’t see how it would be possible to get much lower than the bitcoin. But, as Reinhold Niebuhr observes in “Coherence, Incoherecne, and Christian Faith: The Possibilities and Limitations of Our Knowing”:
I watched the whole Kelton talk and found it interesting, but problematic from where I sit. It implies that the government can create money at will (no problem there) but it assumes that the State has the power and the independence to put that money into the hands of people like me and not into the coffers of Wall Street firms and the rich. As I see it, QE has created trillions of dollars, but they have been trapped and/or siphoned off into a tiny number of hands. She also never dealt with the issue of inflation, which I think is overrated but real (at 48 I lived through the 1970s and do remember real inflation eating into some people’s purchasing power, especially old people on fixed incomes). So, my questions are still out there, with a few more tacked on. But I am glad for that reference and am sure I learned from it.
I’ve read extensively in history. Don’t you realize that insulting me weakens your argument. There’s no reason for that and I don’t think the world needs more unpleasantness. As for the substance of what you said I obviously don’t agree. Fiat currency is, by definition, political. But beyond that I hesitate to say much more.
Also, everything that involves any societal interaction is political so in a way you are right.
The reason money is stable is because it is sovereign. And it is sovereign because it is political. We all agree to use dollar as a medium of exchange because we can get a fair price with it. With Bitcoin, nobody knows. Bitcoin is similar to a commodity in that its value is practically a random variable. But Bitcoin isn’t even a commodity, in fact it isn’t even a virtual commodity. It is pure illusion.
I agree with you up to Bitcoin not being a virtual commodity. It is a virtual thing of finite supply, no illusions necessary. Its value, of course, is entirely determined socially / politically, as are the values of all commodities. The interesting aspect is that, much like gold, its current price relates not to any physical utility, but purely to the embodiment of social utility as a function of the value socially attributed to it.
The idea of bitcoin as a currency sidesteps the fact that a currency does not operate in a vacuum without rule of law, central banks, sovereigns and multiple political and economic structures to prevent fraud and ensure accountability and transparency.
Bitcoin is apparently created to fight against the unfairness yet has zero accountability and transparency. Who developed it, who makes the rules, who is managing it, who makes the decisions, how is it valued, how do you change it for other currencies, who develops it, who ensures security, is it open source, who own the code? How does its value jump from 130 to 900 in days or weeks without any functioning exchange and no easy way to sell bitcoins for dollars or any currency?
Nothing is transparent and astroturfers point to some vague links on crypto currency as if it is some self running, super free, self explanatory system with no vested interests, on forums full of apparently anarchists and libertarians devoting copious time and resources to understand how to waste huge amounts of electricity to ‘mine’ bitcoins.
Are these ‘anarchists’ and ‘libertarians’ driven by principles and discontent with current financial systems or simply self interested astroturfers polluting online discussions on bitcoin in the hope of inflating its value because of early advantage. Worse and paradoxically to realise any value for its the wet dream of its founders and tech savvy early miners to get something out of nothing bitcoin has to enter this system and accept its rules which makes its reason for existing moot.
I agree generally in that money is a social phenomenon, and there have to be rules in place in order for people to sufficiently trust a currency. But I think the rules around Bitcoin are fairly clear, and I’m not sure the distribution of Bitcoin to early adopters is any less fair than the distribution of today’s more prevalent currencies. Those born today without a cent to their names and needing USD to buy groceries are similarly at the mercy of those with fat bank accounts, often inherited.
Wolf’s piece seems too conspiratorial to be. The government isn’t making Bitcoin volatile. It’s volatility is a market phenomenon driven by the same factors that have driven other speculative frenzies in the past.
Unless somebody can explain to me what the difference between bitcoins and tulips is, I’m going with Kervick’s analysis.
FM~dontchya find it funnee the bit’rs also hoard gold…they can’t clean the skid marks from last nights 20 second halt!
“What glitters may not be gold; and even wolves [the jim rogers] may smile; and fools will be led by promises to their deaths.”
Lauren Oliver
The difference is you used to get a tulip bulb in exchange for your “official” currency.
IMO, that makes Bitcoin a step backwards.
Tho Bitcoin may be backed by the Gross Global Product of drug and crime organizations – so there may be something to it after all.
The drug industry uses private banking.
I thought they used HSBC.
What’s the difference between tulips and BitCoins? BitCoins use computers and the Internet, so it is a whole new paradigm.
With a tulip bulb you can plant it and grow a flower. You might be able to eat it as well?
Bitcoin is data-at-rest that has value because an algorithm says it has value and we’re taking as a given that this data can be updated against other people’s data, forming a register tape of sorts.
I am uncertain how this will work “after the bomb” (which tends, for some reason, to be of stated importance for the libertarian-types who seem to be into this sort of thing) since it seems fairly dependent on an Internet of not-less-than-present functionality, and a similarly working power grid.
But you’ll work yourself into a tizzy pointing out holes in (g)libertarian ideas of how the world works so, meh.
Nobody knows how to value it.. it’s just too new, and only a very small percentage of people use it as currency. If it was $100,000 per Btc and the price moved $100 in 2 minutes nobody would notice though. It drops 50% in 2 days, but it’s still up 50% from a week ago. Yeah, it’s volatile (understatement yes?)
Read his piece more closely.
He didn’t say they were seeking to make it more volatile
He said they found out how volatile their testimony made Bitcoin and they thus had the power to make it (or more accurately keep) it too volatile for practical use. So they could mess with it. His headline presents a more extreme position than his post, which you seen even in the MSM.
You’ve got basically the same problem for gold, even though the gold enthusiasts won’t often f’ess up to that, and gold is a plenty deep and well established market. Do you see any bonds being denominated in gold, for instance?
In fact, I’ve had goldfan investors (short of being goldbugs, these were investors deeply distrustful of what central banks were doing and therefore saw gold as a good hedge tell me the sudden fall in gold prices earlier this year was engineered by central banks. And this is from professional fund managers, not retail folks who’ve read too much Peter Schiff. One fellow said he was told three weeks in advance of the crash from a very well connected (as in advise some key government bureaus) insider in China.
Now I don’t subscribe to that theory but I regard it as not impossible either. The formerly high price of gold was depicted by more than a few investment commentators investors’ inflation expectations weren’t well anchored. And the runup of gold gave the hyperinflation types more cred than they warranted.
I was focusing on this paragraph:
Yet they are fretting about transactions. It seems they would like to prevent bitcoin from competing as a currency with the dollar. But they don’t want to get their hands dirty. And they found out how to do that. It’s so simple, it’s beautiful: Encourage bitcoin to become so phenomenally volatile with such mindboggling jumps and brutal crashes that no one can afford to use it as a currency to buy or sell anything, licit or illicit.
I suppose that can be read as saying not that the government is already making Bitcoin volatile, but they have discovered how to do so and may exploit this power in the future. But Richter also adds:
Turns out, all this drama can actually happen in time-lapse. Not in weeks, but in hours. Yesterday around midnight, after an already crazy run-up, bitcoin traded for $575. Then, triggered by the word “legitimate” or some other word, or something in the water, it spiked to $900 for the briefest moment at around 5 p.m., only to crash to $502 by around 4:45 a.m. today. It since jumped to $745, and now, as I’m writing this, re-crashed to $640 $599 $489. You can’t do business with a “currency” like that. You can only have fun with it or lose your shirt. And the Fed, the SEC, and a myriad of other regulators can pat each other, or themselves, on the back.
It sure sounds like he thinks federal regulators are somehow responsible for the recent Bitcoin market craziness.
This is all of a piece with libertarian foolishness. The libertarians think laissez faire markets are self-regulating, so that if they are going screwy, that must be the doing of the evil Man in Washington. I’m sure when the Bitcoin pyramid game falls apart, the true believers will have some Bitcoin Truther conspiracy theory to hang onto about the evil Fed plot to destroy there precious Bitcoins by stealth. But the potential for this kind of craziness is built just another humdrum case of the madness of crowds and popular financial delusion.
We already have virtual currencies. Most conventional state currencies are held primarily in electronic form. The only benefit of Bitcoin transactions is that they offer greater confidentiality: potentially great for tax dodgers and other crooks; potentially great for innovating new forms of tax sheltering and capital flight; potentially great for the plutocratic traitors who are always looking for new ways of cashing out of America and are running out of vampire squid dollar extraction innovations.
Hey!
Libertarians buy bitcoins for the same reason the government buys $500 hammers and $1,000 toilet bowl seats: somebody has to do it!
Yes, they ARE “responsible for” in the sense that favorable remarks led to a really huge price jump. This was not different than the period when investors has more enthusiasm for gold that dovish remarks from the Fed would lead to a rally in gold markedly bigger than that in stocks.
I read Richter as saying they could use that with intent going forward, and not that their remarks were made with the intent of moving prices.
Its a pyramid. Technically it does not do anything that dollar can’t. Attempt to regulate a pyramid by SEC almost anecdotal. There is no value created, just transferred.
As an investment Bitcoin is something to look at if you want to gamble. I like the idea of an unofficial currency and whether it is Bitcoin or something else (I’m inclined to see Bitcoin as a transition currency) society is looking for instruments with liquidity that can service the unofficial economy. Right now it is done through laundering schemes and many saw Bitcoin as a way out of that expense but its volatility will probably sink it.
Some years back Misha Glenny described the illegal economy as making up about 15-20% of the world GDP. From what I’ve seen from “street” level I believe that estimate is a little low and rising such that today it is probably 20-25% with no sign of declining unless drugs are legalized in the U.S. So a lot of activity in the world economic system involves a lot of funny business as we used to say.
It would be interesting to get some info on countries with more than one currency. Is it true that the Yuan and the Renminbi are separate currencies and how does each one work? In Switzerland they have the We and the Swiss Franc. I’ve read that the Franc is used internationally and for trade while the We (or is it the Oui?) is strictly domestic. Anyway, if we were to accept Bitcoin as a second currency it would come with all the restrictions required by a currency. And since it is already a global digital phenomenon, that might be difficult. Might be impossible.
A currency backed by a nation ultimately has the coercive apparatus of the state behind it.
Bitcoin is worth what anyone thinks it is worth – could be anything, could be nothing. Like the tulips in early modern
Netherlands.
There is no collateral… Just saying…
collateral is necessary for promise to pay referencing extrinsic value.
Bitcoin isn’t going away.
I am an early adopter. I used to mine BTC back in 2011.
I sold out 200 BTC when the exchange rate was at $10.
BTC still hasn’t met it’s critical mass yet for a simple reason.
They do not comprehend how it works.
I’m am not implying lack of intellect. I am saying the vast majority of people do not know about irreversible cryptography.
They especailly don’t know how BTC uses it to secure the blockchain (ledger of all BTC transaction).
It is nearly impossible to counterfiet a BTC or a BTC transaction.
The current CPU power that is ecuring the network is over 50000 petaflops.
The Top 500 Super Computers in the world combine for just under 15 petaflops.
The power of BTC is in the authenticity of the medium and where the medium of exchange went.
It is basically an uncorruptible data stream.
007 says “BTC still hasn’t met it’s critical mass yet for a simple reason.
They do not comprehend how it works.”
yep, ‘They’ only require one more year to grasp the metric system (he he he he he)
“I’d rather be poor to my bones than be rich with your money, that is like a trigger, ready to be pulled in my face.”
Nema Al-Araby
I don’t think metrics and elliptic curve irreversible cryptography are very comparable when it comes to ease of understanding.
The magic numbers in elliptic curve cryptography are the weakness. Who chose them?
“the fact that the NSA is pushing elliptic-curve cryptography is some indication that it can break them more easily.”
Bruce Schneier.
Again I ask, who chose the constants for the EC and why were the specific values chosen?
While I respect Bruce, that’s his opinion (unsupported by evidence) that is why NSA is elliptic curve.
This came out a fews days ago .
Elliptic Curve Cryptography in Practice
http://cryptome.org/2013/11/ecc-practice.pdf
An analysis is performed on Bitcoin as one of the implementations ECC.
Draw your own conclusions.
The bitcoin is a wonderful financial innovation.
Unfortunately, like most financial innovations it is most likely to be nothing more than just another innovation in fraud.
With four parameters I can fit an elephant, and with five I can make him wiggle his trunk. (an strangle us all!)
Von Neumann
Bitcoin is market statism and nothing more. Without the rule of law, there is no private property or money.
True equality. That was the real “anarchist” position. The “libertarian” position doesn’t merge with that. Thus, you see Ayn Rand’s rejection of Anarchism…………
Bitcoin is doomed to failure, but let’s set aside the regulatory hurdles. Bitcoin was designed as an inherently deflationary currency. Bitcoin is gold redux, and therefore can never be anything more than a toy.
It demonstrates the demand for a quasi-anonymous networked currency for illegal transactions, and it amasses wealth for insider/early adopters. Those are the extent of its uses.
IMHO, I think the technological wizardry behind Bitcoin obscures its true nature. People talk about elliptic curve cryptography, the computations involved in bitcoin mining, etc. etc. and while that’s all great, it confuses the issue of what Bitcoin *is* from an economic sense.
From a purely economic sense, I believe Bitcoin is simple: it’s a currency with a predetermined rate of monetary expansion, with no central bank or state backing. Because there is no state forcibly creating liabilities that require bitcoin (i.e. taxing), the currency and its users are free to find its own purpose and utility. That could end up being an exchange medium for private transactions, an investment / hoarding vehicle, or purely speculative play with no bearing on the real world. That currently it is being used by different players for all three purposes with no dominant use coming to the forefront just means it’s early and lacks a dominant player like most state-controlled currencies have.
But this is hardly something revolutionary (from an economic sense; I think the technology behind it was quite innovative). After all, “real” currencies can be used for the same purposes and no one seems to be mystified by what a dollar represents (though maybe they should :-). Heck, just like early people mined a few bitcoins as novelties, plenty of people keep a few paper notes from various currencies as souvenirs. That doesn’t seem to throw economists into mass confusion about the nature and purpose of those currencies. Why bitcoin?
I wonder why Satoshi Nakamoto, who ever he/they are, do not come out public. If he/they truly created bitcoin, he/they would be pretty wealthy by now. How do you resist such easy money? I wouldn’t be suprised if the Internet became self-aware and decided to mess with us.
The digital equivalent of gold is what it is, and its supporters/fans behave interestingly similar to goldbugs…
I’d like to donate. Y’all except Bitcoin?
The real value of bitcoin is in its censorship resistance. No one can tell who donated 10 bitcoins to wikileaks or numerous other things the state doesnt like. Politicians probably love the fact people can send them bitcoins off the books :P
There is no collateral for bitcoins. At least the US dollar is supported by the hard work of its citizens. Gold has limited supply and you can touch that rare metal. But Bitcoins, no one understands what is behind it and with so many bitcoins millionaires, it reminds me of derivatives, Madoff and the emperor’s new clothes. Just a lot of profiteers looking for fools and they are very easy to find. If only the media such as CNBC and Bloomberg would stop spinning this yarn along with e-cigs and other crap topics. Don’t fall for the bitcoin crap-there is nothing to stop it from hitting zero and its so silly – use your dollars not bitcoins- even the newspaper boy will laugh at you