The Bitcoin Community Disagrees on What Happens Next

http://www.bloomberg.com/news/articles/2015-09-18/the-bitcoin-community-disagrees-on-what-happens-next

by adventured • 11 years ago

30 68 11 years ago

jokoon• 11 years ago

"Community" ? You mean a horde of tech speculators who would gladly get an opportunity benefit from having some insight about bitcoin just to benefit from it.

I don't understand how there could really be a community that revolves around a crypto currency. It's just some people with a libertarian agenda, who don't like banks or government, and want to make money.

I would gladly hear about the community of programmers who actually write code and try to design new decentralized technology. The "bitcoin community" is not that. I don't think you can find many expert on how bitcoin works.

I would rather call those people finance tech entrepreneurs.

qwertyboy• 11 years ago

The existence of "finance tech entrepreneurs", as you politely call them, and the fact that they are indeed very noisy, does not mean there isn't a community of programmers who actually write code and try to design new decentralized technology.

aianus• 11 years ago

It's just some people with a libertarian agenda, who don't like banks or government

Sounds like a community to me.

wpietri2• 11 years ago

It depends. It takes more to form a community than a common descriptor. For example, consider "atheist". There isn't really an "atheist community", in that there's very little in common between atheist Buddhists, atheist Jews, former Catholics, apostate Muslims, atheist skeptics, atheist Unitarians, etc, etc.

There are many communities that are accidentally or intentionally atheistic, of course. But that doesn't mean there's a community of atheists.

Given both the Bitcoin and libertarian tendencies against centrality, I'd be really surprised to discover that there was really a single Bitcoin or libertarian community. I'd expect a number of relatively distinct communities that interact around common resources or interests.

As an example, consider the Great Lakes. There isn't really a Great Lakes community; people in Toronto and Chicago don't have much sense of shared identity. But the shared resource demands joint action, so you see things like this:

https://en.wikipedia.org/wiki/Great_Lakes_Compact

https://en.wikipedia.org/wiki/Great_Lakes%E2%80%93Saint_Lawr...

benihana• 11 years ago

I don't understand how there could really be a community that revolves around a crypto currency.

"I admit to not understanding this thing, yet feel okay spouting off some smug opinions about it."

Ok.

brighton363• 11 years ago

Right. There's an obvious community around bitcoin. If this guy doesn't understand why that community exists, then why would his opinion be relevant...

adrianmacneil5• 11 years ago

I would gladly hear about the community of programmers who actually write code and try to design new decentralized technology. The "bitcoin community" is not that.

You obviously have not met any of the bitcoin core developers. There are many talented people pouring their time and energy into bitcoin, not because they have a libertarian agenda or want to get rich quick, but because they believe in building a new decentralized technology.

brighton363• 11 years ago

I'm pretty sure the value of Bitcoin is circumventing regulations. Similarly, I'm guessing the Bitcoin community doesn't care very much about whether a government agency classifies it as a currency, a commodity, or a potato. Note that most of the quoted people rarely if ever engage in commerce with Bitcoin - so I'm not sure why their opinion on regulation is terribly relevant.

harigov• 11 years ago

I guess the people noted in the article are the ones who are either influencing those who engage in commerce with bitcoin, or those who are building tools and platforms to enable such commerce to take place. Either way, I am not sure bitcoins value is derived only from the lack of regulations. Sooner or later all the regulations applicable to existing financial instruments will be applicable to bitcoin as well. I think the value stems from the universality of the currency and the inherent trust enforced enforced through encryption.

facepalm• 11 years ago

The issue is in the way it is being taxed. For example in Germany, theoretically you have to collect VAT if you trade Bitcoin (at least if you do it professionally). I didn't know that before, but apparently only gold is exempt from that (and currencies). If you trade silver or some other stuff, you are liable for VAT.

So it would be nice if Bitcoin would also be exempt from VAT, like gold or currencies.

jsprogrammer7• 11 years ago

The only tax in Bitcoin is the voluntary mining fee. If governments want to collect tax on Bitcoin transactions, they will need to run a mining farm.

calgoo• 11 years ago

"It’s an OK commodity but it’s the equivalent of selling real estate on the moon. There’s no inherent value. I applaud the ability of speculators to make money from selling it to other people, but I don’t think even calling it a commodity is enough. It’s a kind of shadow asset."

I love when people who are in finances say that bitcoin has no vale; when actual money today is so complex in determining its value that you could basically say its a virtual coin as well.

rwmj• 11 years ago

It's also obviously not true with even the tiniest amount of research. If you want to buy something online anonymously, then you use Bitcoin. There's the value.

amalcon• 11 years ago

The problem with this is that Bitcoin is just about the least anonymous thing ever. It only seems anonymous because nobody's built the infrastructure to track it yet.

wpietri2• 11 years ago

I don't think that's really inherent value in the sense referenced. A commodity is something that satisfies wants and needs on its own. See, e.g.:

http://money.cnn.com/data/commodities/

The reason I think it matters is that when commodities are used as currencies (e.g., gold, silver), the use value supports the currency value. If gold's value as a currency falls to zero, you can still make some nice jewelery. Whereas if people stop accepting dollars or Bitcoins for things you actually want, then they are basically useless.

lmm• 11 years ago

Conventional money is backed by national governments. Stable currencies tend to be associated with democracies, where that government will be held accountable.

Bitcoin by contrast is like a rotten borough where all the votes are bought: you get a vote in bitcoin in exact proportion to how much of the mining capacity you own.

icebraining9• 11 years ago

That's still more democratic than currencies issued by dictatorships, yet nobody would say they have no value.

LAMike• 11 years ago

The way I view Bitcoin and money is like the OS wars of the past few decades. Up until this point the big OS's (Microsoft == USD, Apple == Yuan) have been copyrighted by the government.

They control the updates, what is allowed on their platform, and the way developers make apps for that platform.

Bitcoin is the Linux of the money system. An Open Source OS for money, where developers can build apps without asking permission, and the community actually has a say in the progress of the OS, whether that's a good or bad thing we'll find out.

JesperRavn3• 11 years ago

The economics professor stated As money, Bitcoin is terrible – a deeply deflationary currency that’s within a bubble. I'd like to expand on this a bit.

The deflation issue is complex. It's hard to imagine a stable situation where money has a fixed supply. The simplest steady state one can imagine is constant economic growth r, which is also the real interest rate. If we further assume a constant velocity of money (so the total value of all money is a fixed percentage of GDP), then any currency where the total supply of currency was fixed, would have a deflation rate equal to the real interest rate. Therefore holding currency or zero interest bonds would be equivalent. But money has some transaction value that makes it more valuable than zero interest bonds, so this situation could not be an equilibrium.

Most economists think that in practice there is no way to have a stable currency except by forcing inflation by printing money (which in the current implementation is injected into the economy by buying bonds). I don't think it is possible to create an inflationary currency except through central banks. So I really think that bitcoin faces long term problems.

1ris2• 11 years ago

I think the assumtion that within the next one or two centures the world wide economy comes to stand still and to not grow at all is nothing odd. If you extrapolate the current (last centureis ) energy usage, within that timeframe we are boiling this planet if we go on.

vidarh2• 11 years ago

I don't think it is possible to create an inflationary currency except through central banks.

How so? A number of alt.coins has built in inflation, either through continuous mining, or via staking (such as ReddCoin) or a mix. There may certainly still be plenty of issues, such as lack of ability to adjust the rates without widespread consensus that might make it hard to respond to various situations, but making the currencies inflationary doesn't seem to be a problem.

dllthomas5• 11 years ago

"I don't think it is possible to create an inflationary currency except through central banks."

I don't see why that would be the case. Would not "Bitcoin, but the mining rewards don't decrease" be an inflationary currency?

Dylan168073• 11 years ago

Constant rewards would mean the inflation tends to zero in the long term. But that's easy to fix by making the rewards increase over time in proportion to how many coins exist.

The harder problem is that without a central bank you can't track changes in the size of the economy. The more you want to avoid deflationary periods, the more you have to inflate "just in case". And high constant inflation has its own problems.

So it's better to say that it's extremely hard to create a mildly-inflationary currency without a central authority.

JesperRavn3• 11 years ago

No that you mention it, I think that would be possible.

The main problem is that by its competitive nature, mining rewards are actually deadweight loss. Every dollar value of bitcoin that is given to a miner is value that is destroyed. To see this, imagine that a Chinese bitcoin mining farm is making a profit mining bitcoins, gaining $10 of bitcoins for every $8 of operating expenses. Then another farm could start up with an even lower profit margin. This would continue until the economic profit was zero, i.e. every dollar's worth of bitcoin mined cost a dollar in operating expenses, which are deadweight loss to the economy.

However, none of this implies that a constant inflation rate is not possible. As long as a dollar's worth of bitcoin generates more than $1 of value to the economy, the system should be stable, and the higher this number, the less wasteful bitcoin would be. Given the various figures for velocity[0][1] I've seen, it's not clear whether this system would be prohibitively wasteful or not.

[0] https://en.wikipedia.org/wiki/Velocity_of_money

[1] Note that velocity is the ratio of total money to nominal GDP but since one is a stock and the other is a flow, this doesn't measure how much economic activity a single dollar generates/supports.

lexcorvus• 11 years ago

But money has some transaction value that makes it more valuable than zero interest bonds, so this situation could not be an equilibrium.

The equilibrium price would be set by the demand for money-as-currency. But in the limit of instantaneous (electronic) settling of payments, this demand premium converges on zero, with the only residual demand being for money-as-store-of-value.

The purchasing power of hard money increases with time only to the extent that reality changes, i.e., for the same reason that each year you can buy more CPU cycles per inflation-adjusted dollar. And it's exactly as "deflationary" as the falling price of CPU cycles. This is perceived to be a problem only because of a double meaning of the word deflation: a contraction in the money supply causes a potentially harmful general drop in prices, whereas increased productivity causes a beneficial increase in the purchasing power of money. Those who fear the latter need to explain why it's bad that, e.g., smartphones keep getting better and cheaper every year.

Unfortunately, the usual strategy is to describe both kinds of price decreases as "deflationary", point out that deflation has historically been harmful, and then conclude that hard money must be harmful as well. That this logic is applied to hard money and not to smartphones is most parsimoniously explained by the political incentives that led to the abandonment of hard money in the first place, together with the associated displacement of descriptive "political economy" by prescriptive economics.

JesperRavn3• 11 years ago

Let's start with the empirical evidence. Velocity of money has not grown much at all, over the last 50 years[0]. Surely if the issue was mainly technological, then technological changes up till now would have resulted in a bigger change in velocity.

The alternate explanation is that the transaction value of money is driven by other kinds of economic frictions, in particular agency problems. Although it's not very popular, Holmstrom and Tirole have some theoretical work on the relationship between collateral, liquidity and agency problems. But the general idea is quite intuitive: any contract, whether debt or equity, changes the incentives of the counterparty and results in moral hazard. This places a limit on how much we can rely on credit instead of money.

That this logic is applied to hard money and not to smartphones is most parsimoniously explained by the political incentives that led to the abandonment of hard money in the first place,

Given the above, do you still think that the you know the simple obvious truth and that mainstream economics has ignored it out of willful blindness? Does your parsimonious explanation apply to me?

[0] https://en.wikipedia.org/wiki/Velocity_of_money#/media/File:...

1ris2• 11 years ago

That means the regulator can now bring charges against any wrongdoers trading cryptocurrency futures and options.

I didn't know there are options for Bitcoins. Does anybody know more about this?

icebraining9• 11 years ago

The reason we are discussing this aspect of Bitcoin is because the regulator of derivatives and futures (CFTC) recently ruled against a company (Coinflip, aka Derivabit) which was an exchange for those kinds of financial instruments for BTC.

They made a Show HN some time ago: https://news.ycombinator.com/item?id=7461343

wired_devil• 11 years ago

It's a distibuted computer program. Now they want to charge it? Why? Because money.

jron6• 11 years ago

bitcoin is a 256-bit number. Today, governments would like to regulate the usage of approximately 33,437,921 of these magic numbers. I'm guessing most of community can at least find humor in this.

Dylan168073• 11 years ago

That's not really how they divide...

And they don't care about the numbers in general, unlike certain other cases where people have tried to restrict numbers entirely.

They just regulate transfers of control of value. You can communicate transfers of control of value with anything. Rocks, flags, numbers, dance. Doesn't mean governments want to regulate "magic rocks".

jron6• 11 years ago

Sure, you can represent private keys in many different formats and the keyspace is effectively 160-bit when brute forcing known addresses. I'm just making the point that unlike rocks and flags, bitcoin is intangible and more like speech.

If I posted a number which happened to have a value of $14,001 USD in this post, I would be breaking the law. If I sold t-shirts with bitcoin private keys printed on them, I would be considered an unlicensed money transmitter by FinCEN.

DanBC• 11 years ago

You can communicate transfers of control of value with anything. Rocks

Some people might not know about Rai stones.

https://en.wikipedia.org/wiki/Rai_stones

While the monetary system of Yap appears to use these giant stones as tokens, in fact it relies on an oral history of ownership. Being too large to move, buying an item with these stones is as easy as saying it no longer belongs to you. As long as the transaction is recorded in the oral history, it will now be owned by the person you passed it on to—no physical movement of the stone is required.

icebraining9• 11 years ago

Just like everyone else can find humor in a bunch of people trading 256-bit numbers between them. Except that's just a specious way of framing what's really happening.

jron6• 11 years ago

What is really happening? I'm genuinely interested in your answer to this seemingly simple question.

Animats2• 11 years ago

From the title, it looked like this was going to be about the block size controversy, where there is serious disagreement about what happens next. The article is more like "can anybody find a use case for this thing?"

Bitcoin has had two runups driven by use cases - Silk Road I (drugs), and getting around China's exchange controls. Both were shut down. For most of 2015, Bitcoin has been around $225 ± 25. There were brief bubbles outside that range, and one big drop, but it came back to that trading range. So it's not interesting to speculators any more. Until someone finds a new use case, it's not likely to do much.

There's been progress. Mark Karpeles, who ran Mt. Gox and apparently stole its funds, is in jail in Japan.

adrianmacneil5• 11 years ago

Actually, bitcoin is still being used to get around China's exchange controls. That is why there is so much investment in mining in China - mining equipment is treated as capital investment, and it's trivial to then sell the proceeds for USD.

I would also guess that there are far more people using bitcoin on dark net marketplaces now than there ever were using Silk Road (mostly due to all the publicity), but I don't have any sources to back this up.

I do agree that we are unlikely to see any significant changes in the price of bitcoin in the medium term though. In the long run, the price of bitcoin is mostly irrelevant when bitcoin is being used as a payment network anyway.

Animats2• 11 years ago

"I would also guess that there are far more people using bitcoin on dark net marketplaces now than there ever were using Silk Road (mostly due to all the publicity), but I don't have any sources to back this up."

Bitcoin transaction volume in dollars hasn't increased in 18 months. See this graph.[1] The two big spikes were in November 2013 and March 2014. Since then, not much. Bitcoin usage is not increasing.

[1] https://blockchain.info/charts/estimated-transaction-volume-...

adrianmacneil5• 11 years ago

These recent articles make it sound like there has been a recent revelation by the "U.S. Government" that bitcoin has actually been a commodity all along.

The reality is much more complicated. The federal government is made up of many different agencies, and each one is trying to figure out whether they should be regulating it, in case they may take the fall for not preventing the next big Mt. Gox style collapse or scam.

While CFTC have recently decided that they should regulate bitcoin options as a commodity, the IRS have deemed bitcoin as property for capital gains tax purposes, but their FinCEN division (along with NYDFS and most other states) are regulating it very much as a currency under money transmission laws.

In the end this doesn't really matter. The power of bitcoin is that it is decentralized, and, like the internet itself, if an individual is able to connect to the network, then they are able to make transactions with others, regardless of how liberal or oppressive their government is.

TL;DR: Regulations will continue to make it increasingly difficult to run bitcoin businesses in the U.S., but that doesn't matter. Bitcoin's power will always come from the fact that it is a completely open network for individuals.

The Bitcoin Community Disagrees on What Happens Next

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