Bitcoin and Digital Currencies

Evo also had credit card information (a pretty popular product) on sale, the head admin apparently ran a carding forum.

Scammers gonna scam, there's no honor among thieves.

edited 19th Mar '15 11:47:33 AM by Sixthhokage1

At this point, it's pretty clear that Bitcoin, and cryptocurrencies in general, are in the Trough of Disillusionment: mainstream interest seems to have died off almost completely. While I think it can climb out and become actually useful, one of two things needs to happen:

1. People need to stop hoarding it/using it as a speculative vehicle and start actually using it as a medium of exchange. I don't see it ever completely displacing modern fiat currencies, but I think something like Bitcoin-as-an-alternative-to-Paypal is plausible.
2. A radical redesign, keeping the general concept but fixing the many economic issues (e.g. inherently deflationary, no chargebacks) the original Bitcoin had.

The problem is that it has few if any advantages over current payment systems unless you are a criminal or scammer.

Exactly. Cryptocurrencies have little to offer in terms of speed or security over "paper" currency (that term itself is quite a misnomer these days, as a tiny fraction of currency is in actual coinage or bills). Their major selling point is anonymity — quite literally that you can do online business without your transactions being traceable or taxable by any government.

In other words, it's Libertarian money, and just as reliable as the rest of their ideology in the real world.

Even the untraceable part has a few catches and with it is possible with the right tools and time to track the money or if you slip up in your encryption even once its a hole that can be exploited. DPR got nailed so thoroughly because pretty much everything points at him including a big fat pile of bit coins.

Giving this thread a revive with some relevant news. The IRS was given the go ahead to issue John Doe summons for virtual currencies. Their current primary target is Coin Base Inc., and the basis that supports their claim was evidence of said virtual currencies being used to cheat on taxes or evade taxes in general.

I wanted to wake up this thread with some observations...

When the thread was started, 1 bitcoin was worth about 8 cents.

By Tuefel Hunden IV's last post in December last year it was worth about $750.

As of this post, 1 bitcoin is worth $7087.53.

I took an interest a couple of months ago. And although I've since sunk thousands of pounds into buying bitcoin I haven't yet accumulated a whole one (I own about two thirds of one). I'm rather hoping it continues to go up :)

Cryptocurrencies and Blockchain, the technology behind most of them, are being in a huge variety of applications, not just for speculation. Major countries have tried to ban it, failed and are adopting an 'if you can't beat 'em' mentality...

What do folks think of the technology nowadays?

The tech that makes it work isn't a problem and obviously has other potential uses and I am curious what they can churn out with the techniques used to create block chains. However as a currency this is just digital gold the commodity in about every respect. It requires increasing amounts of energy, time, and resources to generate a single bit coin. It is fine if you treat it like a commodity and everything that entails including the risks and as potential use as a liquid asset.

This is going into Economics thread territory, but...

If one compares the total history (select All instead of 1 day) of Bitcoin's price at coindesk, one might notice a similarity to this.◊

So...might want to sell your Bitcoin soon.

edited 2nd Nov '17 6:40:23 PM by M84

The value of bitcoin, as with any other currency, is based on the shared belief that it has and will retain value. There's nothing magical about this, but the thing that makes bitcoin in particular more of a commodity than a viable currency is that it is designed to be deflationary: that is, it gains value over time rather than losing it.

I lack the time and energy to explain in detail why this is a fatal flaw for a currency, but at a fundamental level it comes down to what you use a currency for. You want people to spend money, because economies are based around the exchange of goods and services, and money acts as the energy source for that exchange. No spending = nothing being bought = no income = no economy. You want people to save money in banks and stocks, because saved money provides capital to invest in increasing productivity. No saving = no capital reserves = no lending = no growth. At any given time, the ratio of spending to saving is a useful metric for how your economy is performing.

Fiat currencies like the dollar are inflationary: more is added to the money supply over time, diluting the value of money already present. This motivates people to spend, because money they hold onto will be worth less tomorrow. Or they can save it — invest in growth in the hopes that the return will beat inflation. But stuffing it under their mattresses is a losing option.

Bitcoin is designed to taper off production over a period of time, so after a certain point no more will ever enter the supply. Via basic laws of economics, if the demand for bitcoin continually increases over time, the value will increase as well. Thus, you do not want to spend or invest it. Rather, you want to hoard it so that you'll get more value for it later. You can't run an economy like this because it'll become paralyzed by people refusing to spend or invest anything.

Further, bitcoin is designed to avoid central control by any governmental or market authority; this means that it cannot easily be taxed, and taxation drives demand. Nor can it be redistributed by any authority to fix balance of payments issues. Thus, like gold, if it becomes a major currency, people who lack it will be at an inherent and irreparable disadvantage, with no resort but to go to war.

Lastly, bitcoin (along with other crypto-currencies, but it's The Face of the bunch) is deliberately marketed as a way to conduct business anonymously, which makes it a magnet for all sorts of black market and otherwise illegal activity. As a consumer, using bitcoin creates a massive disadvantage in terms of your ability to seek recompense for fraud or any other form of malfeasance. We've already seen several prime examples of this sort of thing, and they'll keep coming because starry-eyed egotists the world over keep having to learn the lesson that there's always someone out there who wants to cheat you, and they always have the advantage without a central authority to keep watch. A "perfectly free market" is a market in which you only succeed by being a bigger cheater than everyone else.

Man, that got longer than I intended.

edited 3rd Nov '17 6:49:56 AM by Fighteer

What do folks think of the technology nowadays?

I have yet to see anything which would make me reconsider my skepticism and quite a bit to make me feel vindicated. I think Bitcoin is a failed experiment, regardless of what may happen to the price.

You can find detailed criticisms elsewhere, so I don't feel like repeating myself, but remind me again where Bitcoin is used in the real world for non-criminal enterprises? At best it is the currency of the black market, and at worst it is a destructive speculative asset and nothing more.

Palmstruch. Tulips. South Sea Bubble. Mississippi crash. Railway mania.

It's also worth noting that bitcoin is specifically and intentionally designed to make its early adopters very, very rich. Think about that and what it says about their motivations.

A person comes up to you and says, "Hey, buddy. I've got this great investment opportunity for me you! It's in a completely secure and untraceable commodity, and I've already got a ton of it. If you buy in, you'll be pushing up the value of what I already have, while earning virtually no return yourself unless a lot more people buy in after you. It's mostly used to purchase illegal things and there's no protection against fraud whatsoever. Are you in or what?" Would you do it?

So, a Ponzi-style currency?

Yes. Also, for its .. primary use case. (That, is, untraceable transactions) it is strictly inferior to a numbered account in Switzerland.

Well, Ponzis are scams that occur when there is no actual profit from the whole deed. Bitcoin is not necessarily a scam and even if its originators are profiting from it it can turn a profit for other participants.

Speculation is inherently a zero (or negative) sum game, so the only way people can win on average is if there is an external source of money being pumped in. In this case, bitcoin is presumably propped up by the illegal drug trade. However, it's not like the drug trade has increased 10x in one year, so it's clear that the valuations are not being set accurately.

Bit coin is worse than a ponzi scheme.

In a ponzi scheme, you start with an illusion, and then take the money from late entrants and give them to early entrants. It is theft on a grand scale, but very little money is destroyed in this process, and when uncovered, a good amount of the value can be clawed back - the organizers mansion and fancy car can be sold (at a loss, sure, but still) and some money returned to the victims.

Bit coin does not do this. The majority of new bitcoins arise from mining. Mining expends electricity and cpu cycles to make bitcoin. This is not an efficient transfer of wealth, like the ponzi scheme is, but instead is literally the setting on fire of economic value to no good end. Somewhere coal is burned or atoms are split to make electricity, and somewhere else rare earths are mined to produce specialized chips that are no good for any other purpose than bit coin mining. All to produce non-interesting computational results. There is no value being created here. Not even "secure tokens of exchange", because it is trivial to do that far, far better than block-chains.

Here is how you design a *proper* Crypto currency.

Step one : Be a bank. Numbered accounts.

Step two: Generate a one time pad for every account. Give account holders a single copy of the pad for their account and secure software to use it with. If you want to idiot proof this, you can just give them a custom cellphone that does nothing except manage their account with a proven secure os stack (This wont even cost much. Most of this work has been done by academia already)

There, done. Noone can read your communications with the bank, this is a mathematically proven certainty, and all transactions happen *in* the bank, between internal accounts, behind a faraday cage, and none of this burns megawatts of electricity to no good end.

edited 3rd Nov '17 9:14:53 AM by Izeinsummer

As long as demand for bitcoin as a commodity increases (e.g.: starry-eyed idealists buying into the dream), its paper value can continue to increase. However, its use as an actual currency depends on its demand in trade for real products, and that is, at present, merely sniffing at the fringes of legitimate commerce. Most of what you can buy with bitcoin is illegal, and you'd better believe that the sellers in those transactions are converting to real currency as quickly as they can. That's not a healthy signal.

Edit: Also, this — the bigger picture macroeconomic argument for bitcoin is profoundly stupid and wasteful.

edited 3rd Nov '17 9:04:30 AM by Fighteer

I especially hate how cryptocurrency mining has artificially inflated the prices of high-end GPUs. I've been wanting to upgrade, but when the better cards around 400~500 because they keep getting bought up by damn bitcoin miners, it's difficult to find anything favorable to say about the whole cryptocurrency fad.

edited 3rd Nov '17 9:15:24 AM by danime91

@M84 - indeed, Bitcoin could fold tomorrow. I'm taking a chance (with money I can afford to lose) that it won't fold before I've made at least the same amount of money back. I consider it a high-risk investment. I've diversified into other cryptocurrencies in case it does. And there's the likelihood that it will pop then eventually come back up again and beyond. Or that it won't pop.

For me and many others the appeal for cryptocurrencies is manifold, because they fulfiil hundreds of different purposes, indeed many are made to fulfill a particular role. My current favourite, Substratum, supports an ambitious decentralised Internet system that aims to allow people to access the uncensored Internet in countries where they're not allowed to (true, that includes people using the Internet for criminal activities too). Ethereum powers a massive variety of blockchain technologies and is easy to code your own with. Ripple is a centralised cryptocurrency that's favoured by banks (and therefore greatly disliked by many in the cryptocurrency world!) and intended to make for far easier global payments. And so on, as there's thousands of coins out there

But ignoring my dabblings into coding with Ethereum, I'm mainly in cryptocurrencies to invest and make more money. Can't say I'm not :)

edited 3rd Nov '17 2:44:40 PM by betaalpha

You would literally be better of and more socially responsible playing poker or roulette instead.

Those are zero sum. If you are better or luckier than the people you play against, you make money, and if you are not, at least you are not lighting money on fire - your loss is someones gain, and hopefully all involved at least were entertained. so there is a net creation of value there. Bit coin burns value. The dollars you invest are nobody's gain and almost everybody who ever invested in bit coin is going to loose their shirt because there is no money in the pot when confidence collapses - it all got spent on electricity and chips.

If you want to make a high volatility bet, there are so much better ones. Pick a startup blindly. By the efficient market rule, the price represents the probability of its success x its upside - (a startup valued at fifty dollars per share could for example imply a ten percent chance of hitting 500 dollars share and a ninety percent chance of failure) so if volatility is what you want, actually useful investments will get you that, and will be priced much more sanely.

edited 3rd Nov '17 3:23:25 PM by Izeinsummer

Plus, there's a chance the startup might actually create something productive and useful.

Anyone read Attack of the Fifty-Foot Blockchain? It’s a book by a guy called David Gerard about cryptocurrencies, and it’s fun and interesting as hell. Really gets into what makes bitcoin and its descendants (and the community that’s grown around them) so utterly bizarre.

Nope, but I'll probably get someone to make it my Christmas present :)

I have just watched a You Tube that introduces Iota, which is a cryptocurrency that isn't actually a blockchain, and doesn't feature mining (the device used in a transaction instead 'mines' two previous transactions to validate them). It's currently the seventh most popular currency by market cap and sounds like it solves a lot of issues that bitcoin has.