Bitcoin - thoughts?

Hi Everyone,

A few people have mailed in suggesting we talk about Bitcoin on the show at some point soon.

Now, I am going to confess, and as we alluded to a little in the last show, I am rather thin on knowledge when it comes to Bitcoin - I have the basics down, but I am doing some more research to learn more.

So, I wanted to gather the thoughts and opinions of some our voltheads (or however else we refer to listeners):

  • What do you think of Bitcoin overall?
  • Do you think Bitcoin is going to have a wider economic impact?
  • Where do you think Bitcoin is blazing the trail over other developments in the global economy?
  • How have you practically used Bitcoin?

Thoughts and feedback are welcome! :slight_smile:

Useful technical summary of Bitcoin: http://www.michaelnielsen.org/ddi/how-the-bitcoin-protocol-actually-works/

The social impact isn’t addressed there, of course. There seems to be quite a lot of “Bitcoin isn’t a currency because it’s {too volatile,speculative,not underwritten by a government}” stuff going on from not-very-impartial parties like banks and Paypal (case in point), although there’s equally a great deal of frantic boosterism going on from cryptocurrency fans, half of whom see themselves as Sticking It To The Man in a way that makes them feel like John Matrix in Commando. Hard to see the truth amongst the Niagara Falls of bullshit from both sides.

There’s a really good New Scientist piece on Bitcoin that also explains the other uses for it which could be very interesting.

http://www.newscientist.com/article/dn24620-bitcoin-moves-beyond-mere-money.html#.UqiR_mRdWAx

A guy I know is into Lite coin, which seems to have been nobbled to keep the hashes from getting too complex and requiring super computers to process but I should highlight that I don’t understand at it’s core how or why that’s possible and why someone would invest in these newcoins and as far as I could tell you’d have to run a home computer for about 1000 years to pay for it once you factor in the increasing cost of power.

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Sounds like a conversation from my university days.

Overall I find bitcoin to be an interesting social experiment that seems to have gotten rather large. I find the idea of a currency outside the control of any one government to be intriguing. I’ve done a bit of (wildly unsuccessful) mining, but haven’t had any piratical experience with it. I look forward to hearing your in depth discussion.

I know the Linux Outlaws crew did a fairly well received technical review which can be found here if anyone is interested in another discussion on the topic.

You’ll be right at home talking about it then :slight_smile:

Not specific to bitcoin but digital currency in general, the mining is starting to affect prices of components:

Charlie Stross sums up my own thoughts pretty succinctly. The increasing financial cost (in terms of hardware and electrical costs), the increasing hardware requirements to efficiently mine more coins, the massive volatility involved (50% of the Btc<->USD value sliced off just because of China’s denouncement of the currency), and the inherent dangers surrounding Btc (cf the recent embezzling of 96K Btc from sheepmarket) make it, to me, just stupid to try to get involved in.

You guys were totally wrong about Bitcoin.

  1. Volatility
    Merchants who don’t want to subject themselves to Bitcoin’s volatility can use payment services like BitPay, which will spit them out toilet paper fiat currency into their bank accounts. It also cuts down on the transaction confirmation time for point of sale convenience. 2013 saw a 50 fold increase in it’s value - $14 to $700, the latter price being after the big crash in December. Comparing that to the Weimar Republic is just not accurate.

  2. Pseudonymity
    Through bitcoin mixing services, it is possible to conceal the source of one’s bitcoins. Just like using Tor, it is possible to operate psuedonymously.

  3. Drugs/Other Illegalities
    Obviously, cash is the king of the black market. The Silk Road had a trade volume of 1.2 Million in USD with no associated deaths or gang violence. It is (was?) infinitely safer than the old fashioned, cash based, government-created street gang drug trade, and had a reputation system to ensure safety. Compare that to the 70,000+ killed in the Mexican drug war.

  4. Bitcoin is the MySpace of cryptocurrencies
    Bitcoin has by far the most hashing power pointing at it, so it is unlikely that it will go away. The investment that has been made by miners as well as bitcoin holders is considerable. The 51% threshold is massive, which is a huge advantage for Bitcoin.

    Certainly centralized businesses like exchanges, marketplaces, etc can be wrestled away by the government, but actually regulating the Bitcoin protocol is impossible. There are ways to build protocol layers on top of Bitcoin, so decentralized exchanges could be built on top of the Blockchain itself.

There are people using MySpace, you know. And Friends Reunited. Those sites are of use to their small communities, who get on fine with them and have no desire to use anything else which came after. Although that you use the phrase “fiat currencies” and more importantly “toilet paper fiat currencies” makes it clear where in this debate you stand. :slight_smile: The point isn’t that The Man can’t regulate the Bitcoin protocol: it’s that not enough people care about Bitcoin to make it mass-market. If it stays in its small MySpace community, that’s fine in my opinion, but perhaps not in yours.

I think a natural ceiling for Bitcoin is that to get £1/$1 worth of bitcoin, you either have to spend way more than £1/$1 in electricity and equipment or buy them with £s or $s at a rate greater than £1/$1 per unit. If you were able to get in before that was the case, then enjoy the party. But for the rest of us, it’s a futile effort.

@sil said on the show that @bryanlunduke would be annoyed if he went in to buy a bag of flour and it was $2.00 more than it was yesterday, and that’s the same thing as buying with bitcoins.

However, I think of Bitcoin as more of an investment medium. If you went in with gold nuggets, you would have the same situation. On 2 Dec, 2013, gold was worth about $1220/oz. Now it is worth $1198/oz, which means it would take a larger amount of gold to purchase the same quantity of something as it did 3 weeks ago. Bitcoin works the same way. I don’t think of it as an everyday currency, it’s more like stocks or gold or silver or whatever. Buy (or mine) low, sell high. That said, the dollar is affected in a similar way. As oil prices rise, the cost of food rises, because trucks and trains and every other step in the food production process uses fossil fuels…Or as the Swiss Franc rises against the dollar, the dollar winds up buying less.

And an interesting factoid, The Swiss are considering treating bitcoin as any other foreign currency.

Full disclosure: I do not mine or own any bitcoins.

One concept of Bitcoin I really like a lot, is the simplicity of transactions… which comes mainly from the fact that no bank is involved. To some degree this is also amplified by the terrible UX of the home-banking software of my bank. That’s all I can contribute to the discussion right now, because it is 4 in the morning yawn

Best regards…

MacSlow

This can be a good or bad thing. This puts the onus of responsibility on the user. There are numerous stories of exchanges getting hacked, and individual wallets stolen by malware. Then there is this chap, who threw away a hard drive with a wallet $9 million, and didn’t realize it until it was safely hidden in a landfill…

Right, currencies fluctuate, but not like gold does. And I’m fine if someone believes that Bitcoin is an investment medium, but if you believe that then you ought to be opposing people who say that it’s a currency, in the same way that you’d oppose people who want you to spend gold nuggets. And, frankly, if it’s an investment medium, I don’t care about it at all personally; there’s plenty of stuff to invest in already, and some of that is artificially constructed too; if what you want is to invest in an artificially constructed thing then invest in pollution futures and you’ll make the world better too.

Right, but no banks are involved because it’s a tiny economy. If Bitcoin takes off, there’ll be banks. Everyone keeping their own wallet on their laptop is like keeping all your money in pound notes under your bed. There is a reason people use banks. Especially the first time you cross a border and the border guards confiscate your laptop and thus all your money with it. Sure, maybe you’ve got a backup, but where do you keep it? You’d trust Dropbox for that? And saying “oh, I’ll encrypt it, and store it on my home server” is just a long way of saying “this will never be mainstream” :smile:

I agree with most of what you say. Though I don’t oppose people using bitcoins to buy things, nor do I oppose them using gold. Do I think that it is an unwise? Sure.

In the same way as buying a Bugatti Veyron or Lamborghini Aventador to drive on American interstates where most speed limits are between 55 and 75 MPH. I don’t oppose them doing so, it’s their money. I just think it could be more wisely spent…Sort of an indication of “more money than brains.”

As an investment, it’s kind of like Linux…Geeky and cool and “our” thing. The techie crowd thinks that “old” people invest in pork bellies or real estate or whatever…This is our thing, we can do the work (like gold miners of old) and dig out our own currency.

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You can keep your Bitcoin-wallet on your smartphone as well. This is much less likely to be taken away at a border/customs-check (btw, I never had to give up my laptop at a border-control… and you know that we travel a lot). I do not expect banks to be able to force themselves into the Bitcoin-transactions. It is part of the design to be “man in the middle”-less. Furthermore keeping backups of you digital wallet and the strong encryption, take away much of the fear of losing it imo.

Best regards…

MacSlow

Paul Krugman had an interesting column on bitcoin just this past week: http://www.nytimes.com/2013/12/23/opinion/krugman-bits-and-barbarism.html?_r=0

He makes the argument that bitcoin is actually a throwback to the 17th century and that its proponents can be compared to gold-bugs. The irony, to me at least, is that you need really advanced technology to create this throwback currency.
EB

I hugely, hugely disagree. Ask @jonobacon how many phones he’s lost in airports :smile:

Of course, maybe you’ll say this: my bitcoin wallet isn’t only stored on my phone. It’s stored in the cloud and my phone accesses it. And I can access it from my desktop machine too, of course, because it’s in the cloud. At that point… your cloud provider is a bank. That’s what a bank is, for these purposes: a storage place for money run by someone other than you. Except that banks pay interest, and your bitcoin storage place doesn’t, so it’s worse than a bank.

Alternatively you’ll say: no no, it’s stored with strong encryption on a server that I run. And then Bitcoin is only useful to people who run their own servers, and so it’s techies only.

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