Bitcoin Is a High-Tech Dinosaur Soon to Be Extinct

http://www.bloomberg.com/news/2013-12-31/bitcoin-is-a-high-tech-dinosaur-soon-to-be-extinct.html

by secretasiandan • 13 years ago

31 56 13 years ago

Aqueous• 13 years ago

"In fact, if you strip away its technological trappings -- the encryption, the peer-to-peer networks -- and Bitcoin closely resembles these earlier private efforts."

In other words if you strip away everything that makes BitCoin different and unique from its predecessors, BitCoin looks the same as its predecessors.

fragsworth• 13 years ago

Hardly anyone gets Bitcoin, yet. But I am pretty sure that they will, eventually. It takes a long time, even for smart people, to really figure it out.

tlrobinson3• 13 years ago

Agreed. I've seen very few Bitcoin skeptics who have demonstrated deep technical understanding of Bitcoin and it's potential beyond a simple currency. If they exist I'd love to hear about them.

yoyo1999• 13 years ago

Bitcoin is targeted to those whom educated but not smart; Whom lacks a real opportunity in life.

azakai2• 13 years ago

Yes, but the point of view of the article is that from the perspective of national governments, it is similar. Hence they will try to kill it as they killed previous currencies that competed with the government monopoly-issued money.

I agree that bitcoin might be harder to kill due to those technological aspects, that does feel like it was not sufficiently addressed in the article.

logicallee• 13 years ago

I thought the sentence was clear. For example, if you strip away the mobile, network-connected, and technological aspects of a mobile phone away, you are left with nothing: there's no centuries-old parallel for such a communications device. With bitcoin, apparently there is.

salient2• 13 years ago

Messages by carrier pigeon? Sounds pretty "mobile" to me.

I think the point is Bitcoin is revolutionary in many ways than just being a digital currency. It's also P2P, and these type of technologies seem very hard to shut down by governments, after reaching critical mass. There are probably a lot of things governments could do to slow it down, but I'm not sure they could kill it.

codex2• 13 years ago

I don't see Bitcoin as an alternative currency. I see it more as a bank account held in a foreign currency. These exist today.

CamperBob2• 13 years ago

It has a lot more in common with gold than it does with currency. Its ultimate role may be to act as a basis for more usable cryptocurrencies.

ftwinnovations2• 13 years ago

Only if that foreign currency is absolutely never inflated by that government, and allowed to thus increase in relative value to all the other fiat currencies.

And also that bank account does not flow through the existing US controlled international financial system.

And that bank account does not require an ID, residency address, or even your name to open.

Oh, and that bank never lends your money out. They keep a 100% reserve on all deposits.

I suppose this bank also has no bank fees, no wire transfer fees, no wire department transfer latencies, no bank holidays etc.

I should also point out that if you are a US citizen, it's nearly impossible to open a foreign bank account without either 1) foreign citizenship 2) connections 3) a very large minimum balance.

Then, you are correct, it's like a foreign bank account.

codex2• 13 years ago

I'm considering it only from a currency regulation standpoint, as per the article. But it's easy enough to make sure that you may deposit or withdraw money only from a local bank account, in the local currency, which you must have opened using valid non-anonymous credentials. Existing banks are highly regulated, as you point out.

BTW, EverBank offers foreign currency denominated money market accounts in the US.

nhaehnle• 13 years ago

Everybody who wants to comment on this story should be aware that there is a mismatch between title and content.

The content - the interesting part that should be taken seriously - is about whether basing our economy on Bitcoin is a good idea or not. That is a serious economic question that has nothing to do whatsoever with the technology of Bitcoin.

The content concludes that Bitcoin is a bad idea economically and, unfortunately, the title then highlights the (possibly erroneous) conclusion that this means Bitcoin is necessarily doomed.

It is unfortunate that these different questions surrounding Bitcoin tend to be conflated. Let's try to avoid that here.

wtbob• 13 years ago

Did we read the same content? What I saw was some interesting history about the nationalisation of currency in the 19th century, and an unsupported assertion that states will once again succeed at defeating a private currency.

azakai2• 13 years ago

I don't see where the issue of whether it is economically a good idea is brought up?

The article focuses on the history of money, specifically how governments have increasingly monopolized it. And the conclusion is summarized here:

Anyone who thinks that Bitcoin will triumph has to believe that it will succeed where earlier generations of private currencies failed -- that Bitcoin will, improbably, manage to overthrow more than century’s worth of accumulated state power, jealously guarded and ruthlessly enforced.

In other words, the argument here is that governments will kill bitcoin (if it becomes big enough).

The basis for the argument is that, while bitcoin is new and unique and in no way similar to those old types of money that existed in the past, it is still money, and it is still being used by people within the reach of national governments. And the argument is that those national governments will keep their monopolies on currency by fighting bitcoin.

That leaves open the question of whether they will succeed. Certainly governments have not succeeded at killing another bit* thing, bittorrent.

However, the story is not quite a parallel, as bitcoin will be used in different ways, and likely require far more of a connection to "normal" monetary markets - people will want to exchange bitcoin for standard currency. Governments might be capable of fighting that very effectively, even though they have proven mostly powerless against bittorrent.

anonymousab• 13 years ago

Not necessarily kill, but co-opt or take over entirely. Or even beat it into the ground competitively with a similar digital currency that they control and can promote more vigorously.

dreamfactory• 13 years ago

I think there's maybe a distinction to be drawn between transactions between individuals, which could be made in virtual doughnuts if both parties agreed, and a currency used in trade.

As far as I can see, btc is now two things - a protocol which could be used as technical implementation for any number of things, and also implementation of a currency which isn't backed by any concrete asset or entity (other than end users). For the currency, the main value and insurance against risk seems to be in the brand (i.e. what makes a bitcoin worth more than a foocoin).

But it's trivial for a government to kill commercial use of btc as an alternate currency within their jurisdiction. It's not legal tender and therefore can be banned for use in transactions by registered companies - that can be easily enforced by tax authorities and police. It's also quite justifiable on the basis of collecting taxes, protecting the economy generally, and protecting citizens from being caught with paper that isn't backed by law or national banks. Black markets are by definition illegal - the only question is to what extent they are tolerated and that is largely a question of their size and impact on the formal economy.

salient2• 13 years ago

It doesn't actually talk much about why Bitcoin and other currencies like it were/are a "bad idea" for the economy. It mainly talks about how governments wanted to kill them, and how they succeed in the past (something that may prove much harder with Bitcoin, even if they do want to do that, which so far at least, most don't want to do).

Yhippa• 13 years ago

It would be nice to know if all of the people hyping up and talking down Bitcoin own any Bitcoin.

orthecreedence5• 13 years ago

I lurked for a long time, and recently bought in.

Perhaps the timing was bad, but I'm not a stranger to investing in the stock market (technical trading, mainly) and the patterns I see are favorable (although not definitive in any way).

I also just like the idea of bitcoin. I see people bash it all the time for not being a real currency, but the criteria they judge it on applies to all currency besides direct commodities (I'll trade you one cow for two goats).

The USD has as much real value as monopoly money. The gold which used to back it also has no real value. These currencies are a representation of value, but hold no value themselves.

I feel like bitcoin is slightly different. Although it represents value like other currencies (albeit with much volatility) it has the unique characteristic of being distributed and non-regulated (in the sense of visibility into transactions). I can send anybody with an internet connection (or hell, even a street address) bitcoin. I can store enormous amounts of it on in multiple places, encrypted, and effectively have a safe I can access anywhere that only I can open.

So it does have intrinsic value in that it does what other currencies do, but better.

Will it live or die? Live, I hope, because I've got a horse in the race now. I would argue though that if bitcoin were to fail, something very similar would take its place.

jotux• 13 years ago

Private currencies were local to small areas and national currencies were created to consolidate control and distribution to citizens -- making transactions easier between states, controlling inflation, etc. Why not look at bitcoin as the next step: a means to globalize currency and facilitate international economic growth.

crazy1van• 13 years ago

Interesting point. Seems like a single currency would make transactions more efficient. That's why the EU did it, right? The problem becomes who controls it. You'll have some nations who want to inflate it. Others who won't. Eventually the system breaks down. That's where I see bitcoin as having an advantage. Everyone knows from the beginning the currency's inflation trajectory.

asfapifb• 13 years ago

This sounds like a good idea but it isn't (for now). Look up "Currency Areas". There are several economic factors that are essential to make a single currency successful. One of the downsides of a global currency is that if someone is indebted to someone else, they can't print money until the debt is paid. Not only that, but it creates issues when labor forces aren't liquid geographically and trade isn't free between places. The value of the currency will start to benefit some economies at the expense of others, leading to inescapable stagnation (this is one of Greece's problems).

FWIW many economists were skeptical of the Euro zone because it failed to satisfy some of the criteria of a currency area. This resulted in problems for some of its members following the 2008 crisis.

triplesec• 13 years ago

This guy's argument just boils down to "they failed in the past, so these guys will fail now, any other outcome is preposterous." This is not an argument which can sand without consideration of factors of new technology, virtuality, and globalism, never mind any social and political factors which are different now from then.

Weak opinion article, with no actual coherent reasons to believe him. "It happened before, it must happen again" is not an argument.

BTW I am not entirely bullish on Bitcoin, but it's not because of this guy's (non-)argument.

blahbl4hblahtoo• 13 years ago

I think that all evidence points to states having far far more power to respond to technologies than anyone here can imagine. Frankly, in light of all the public disclosures this year I can't help but wonder where all the bitcoin optimism comes from.

chj• 13 years ago

I am wondering what kinds of techniques governments could use to destroy the Bitcoin P2P network when they declare it illegal.

foley2• 13 years ago

Most of the mining is now done in large data centres packed with ASIC miners. Ban it, seize the equipment and the government can immediately begin a 51% attack. Shut down the exchanges leaving only peer to peer exchanges, but now your local exchanger has the legal status of a drug dealer and all the sketchyness that comes with it.

No doubt there will be protocol changes to blacklist the government miners, a cat and mouse game will ensure. Bitcoin will survive, but it will be a tiny fraction of its previous size.

natrius2• 13 years ago

Governments will likely try to legislate Bitcoin out of the market, but I doubt they'll succeed. In a democracy, it's easy to make something that's used by a small number of people illegal, but if plenty of people are already using it, they'll vote you out of office.

If someone tries to make Bitcoin illegal in America, why wouldn't large Bitcoin holders try to distribute bitcoins as widely as possible in an attempt to win over the people and retain as much of the value of their Bitcoin holdings as possible?

Here's a short story that resulted from that thought experiment: http://niran.org/bitcoin-fiction/the-blockchain-letter.html

JamesArgo• 13 years ago

This reads like religious fiction and makes me seriously question the rationality of the bitcoin community.

SectioAurea• 13 years ago

Most Bitcoin users don't believe this will happen, for what it's worth. The 'armageddon facedown with the government over Bitcoin' is just another doomsday fantasy popular with those who enjoy doomsday fantasies.

The rational types have already seen it taxed as capital gains in several countries. It's not even a question of if they will fight it anymore. They were never going to.

natrius2• 13 years ago

Communities don't have rationality. People do. If you're going to question my rationality, the least you can do is argue your case.

chipsy• 13 years ago

The article is advocating an incomplete picture. If we see this as a cyclical struggle between state-backed and private currencies, then what will actually happen is a competition between the two.

The state will prefer using force to squash bitcoin, because that's what it's good at, but we already have the recent history of digital media piracy to inform us of how difficult it can be; the only thing that has substantially slowed piracy has been to make the legal market increasingly cheap and convenient.

So regardless of who "wins," the existence of bitcoin acts to motivate a restructuring of top-level policies; employment of the traditional warmongering will drive it underground but not out of sight, since there isn't a "head" or "ringleader" to attack.

Havoc• 13 years ago

The author has managed to miss the point of bitcoins with impressive thoroughness. Crypto-currencies are both new and structured fundamentally differently, so don't tell me about 18th century shopkeepers.

* I've <5 USD in bitcoins, so not heavily biased.

orthecreedence5• 13 years ago

Here's a tip I've picked up from the stock market. If everyone is talking doom and gloom, buy in. If everybody is talking about how bitcoin is the greatest thing ever and people are starting bitcoin investing clubs and "the price is going to keep skyrocketing!!!!1"...it's time to sell.

So, it's going to be slightly more regulated. Big deal. People say it has no value, but it does. A bitcoin, at this very moment, is worth ~732USD. That sounds like value to me. On top of the value people give it, it has value in that nobody owns the network, nobody can regulate transactions used with it, and anybody with access to a computer can trade it for goods or "real" currency.

I think people who don't like it a) are uninterested and sick of hearing about it b) lost all their money by buying on peaks (or just never bought in when it was $0.20 and are pissy about it) or c) don't have a clue what they're talking about.

At this point, it has to be treated like a volatile stock. Does it have value? As much value as someone is willing to buy it off of you for. Will the price go up or down? Impossible to tell. Is it going anywhere? Doubt it.

I predict that as more people adopt it and as it becomes more mainstream, the value will increase logarithmically and stabilize.

MichaelDickens4• 13 years ago

If everyone is talking doom and gloom, buy in. If everybody is talking about how bitcoin is the greatest thing ever and people are starting bitcoin investing clubs and "the price is going to keep skyrocketing!!!!1"...it's time to sell.

Right now there are plenty of people in both camps. What do we do then? If we're just talking about predicting Bitcoin's price, I don't see that we have much reason to believe we can do better than chance.

orthecreedence5• 13 years ago

That's probably why the multi-hundred-dollar fluctuations lately. There's also not really enough chart data (or volume) to facilitate technical trading.

You're right. If you have your money in bitcoin right now, you are taking a pretty big risk. However, I personally think that if the past year is any indication, there's not really a cap to the value it has at this point. It could add another few 0s to it's value by next year (subsequently taking other altcoins with it).

At the very worst I think it could drop down to ~100USD, but to go past there would be really difficult as it spent a lot of time building that base between 100-150. Still, that's about 80-90% loss if you were to buy today.

You'd be stupid to put in your life savings, but if you like high-risk, high-reward investments, it might be worth it to throw a few grand in.

stephenbez• 13 years ago

"Be fearful when others are greedy, and be greedy when others are fearful." -Warren Buffett

fatca• 13 years ago

The G4 (USD,EUR,JPY,GBP) may last for somewhat longer than the other fiat currencies, but that does not detract from the fact that currency crises in the smaller fiat currencies are very common (think Argentina).

People who live in a G4 country are apparently incapable of imagining that the situation elsewhere is seriously different than in their own country.

There are lots of Mickey Mouse fiat currencies around issued by the banana republics that keep debasing them until they collapse. Even the Russian ruble is a joke that became entirely worthless, three times, in the span of two decades.

Instead of dollarizing during a monetary crisis, as these smaller/weaker fiat currency areas used to do in the past, they may elect to bitcoinize.

If that happens, you could end up with an entire country using bitcoin. As soon as this happens, nobody will ever manage to eliminate bitcoin in that country.

History does not repeat itself. Collapsing currencies now face a prospect of hysteresis. Reintroducing fiat currency will not work if people have already moved over to bitcoin.

With smaller fiat currencies collapsing one by one -- as they always do -- bitcoin will keep growing stronger and stronger.

MichaelDickens4• 13 years ago

Reintroducing fiat currency will not work if people have already moved over to bitcoin.

Why not?

With smaller fiat currencies collapsing one by one -- as they always do -- bitcoin will keep growing stronger and stronger.

Why would Bitcoin be immune from the factors that cause fiat currencies to collapse? If strong fiat currencies can suddenly lose value, it seems likely that Bitcoin could suffer the same fate. Do you have reason to believe that Bitcoin is different?

orthecreedence5• 13 years ago

Why would Bitcoin be immune from the factors that cause fiat currencies to collapse?

I think the argument is that the more people whouse it the stronger the currency becomes. It has an extremely low barrier to entry because it can be used alongside other currency, and on top of this is decentralized (no "off" switch).

If fiat currencies are replaced by bitcoin, then yes it probably would become "stronger" (ie, more value in relation to other currencies). That's assuming a country who's currency/economy collapsed decides to use bitcoin as the national currency. I don't see why they would at this point, though.

I do think it's entirely susceptible to sudden value loss, at least for the next 5-10 years.

gweinberg• 13 years ago

You know what really is a high-tech dinosaur soon to be extinct? Bloomberg terminals. Seriously why does anyone still use these?

PeterWhittaker• 13 years ago

The main failing of this and other articles - and bear in mind that I am not a bitcoin fanboi, own none, and question whether I should - is that many, many people fail to recognize that cryptography has in recent decades resulted in several sui generis inventions, that is, things in themselves, things entirely new that cannot be reasoned about with analogy to past things, for there are neither analogies nor homologies.

Witness the digital signature: When properly done, bound to the signer and the data being signed and entirely unique. A brand new thing that could never have been done before, not even slowly with other tech.

Thousands will criticize bitcoin, etc., for how they are like past things, few will grasp how the world is fundamentally different for their introduction.

How?

How the heck should I know? I'm not that visionary, nor that smart. None of us will really know for a few years yet, perhaps longer.

Bitcoin Is a High-Tech Dinosaur Soon to Be Extinct

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