Bitcoin: The future of money is at stake

http://www.newscientist.com/article/mg22129551.300-bitcoin-the-future-of-money-is-at-stake.html

by neur0mancer • 12 years ago

61 32 12 years ago

chasing• 12 years ago

Ah, Bitcoin. The Esperanto of currency.

antonius• 12 years ago

.."Satoshi Nakamoto", its mysterious inventor, may have democratised finance – much as open internet protocols have democratised communication.

But what about "turning off" the world wide web so to speak? I'm sure if governments really believe bitcoin is a threat to their currency, they will do whatever it takes to essentially shut it down. If it cannot be digitally traded on the internet, then that value of bitcoin is lost.

kordless• 12 years ago

they will do whatever it takes to essentially shut it down

Good luck on that.

1qaz2wsx3edc• 12 years ago

The rise of the darknets will be funded in blood & bitcoins. Someone should write a novel on this, it's juicy!

prestadige• 12 years ago

Good luck on that

Yes, partly because there are too many countries and partly because each time the government of one country tries to shut it down, and fails, it makes bitcoin look stronger and more viable to the others.

Sammi2• 12 years ago

Banning and blocking Bitcoin is exactly as easy as banning and blocking Bittorrent. And god knows they tried to do that.

ohashi• 12 years ago

If this didn't have the word bitcoin in it, people would have flagged it to oblivion.

atmosx5• 12 years ago

[...] "Satoshi Nakamoto", its mysterious inventor, may have democratised finance – much as open internet protocols have democratised communication. [...]

This comparison is so erroneous that it's embarrassing. Too bad it's from NewScientist, I had much respect for the magazine. Now every time I'll read a NS article I'll think along the lines: who knows, they might got this one wrong too.

vog• 12 years ago

This comparison is so erroneous that it's embarrassing

Not disagreeing with you, but it would be nice if you could elaborate on that, rather than just stating that you disagree with the article.

atmosx5• 12 years ago

Democracy (orig: Δημοκρατία) it means "the rule of people", in the sense that people who are part of this socio-political happening are able to take part in the decision process in direct or indirect ways.

The current system

Today we have the ECB (I'm Greek) and you (I take for granted that most of you are from the US) the FED. So let's talk about the FED. The U.S. Congress established three key objectives for monetary policy in the Federal Reserve Act: Maximum employment, stable prices, and moderate long-term interest rates.

From Wikipedia we can read: Before the founding of the Federal Reserve System, the United States underwent several financial crises. A particularly severe crisis in 1907 led Congress to enact the Federal Reserve Act in 1913. Today the Federal Reserve System has responsibilities in addition to ensuring the stability of the financial system.

To simplify it more: You may or may not like the FED but it's main object is currency stability. Every US citizen chooses a candidate of a political party. This candidate, if elected, goes to congress. The senate and the US President, both elected by the majority of voters[1], appoint[2] the "chair of the FED". Now this is a DEMOCRATIZED process, although indirect: You don't get to vote directly for the chairman of the FED. There are arguments for and against this process, probably studies on how to make it less prone to corruption and so forth, but ultimately the voter's choice shapes the candidates and their odds.

The FED uses inflation or deflation, in order to promote and ensure stability a central power, controlled by the government and indirectly by the people, must have the power create new money on demand (thus create inflation) or deflate the money (thus create deflation) according to what the economy (i.e. the large amount of the population) needs.

Enter Bitcoin

In bitcoin we have a crypto-currency which offers strong anonymity. There is no central control, so the currency inflates[4] or deflates according to the market. That's all good and well and may even work for a while, but if a strong player enters the market then he can make it go up, down and side-ways as he see fit. So, say you have a player owning as much as 20% of bitcoin. If he cashes out the price goes down. If he cashes the price flies up and so forth. By selling at price A+10 and buying double the amounts at price A-10 he could easily double his amounts by out-playing the market. That's not moral, but legal. Now, in wall street there are authorities against this sort of behavior (they don't act as expected of course, but still you have some sort of control and you have always the government that if decides at some point in time to become more responsible towards tax-payers it can regulate the financial market overnight). According to a paper by none other than Adi Shamir (one of the three founders of the RSA algorithm), 98% of BTC belongs to 2% of portfolios. Hence it's expected from them to act in an immoral self-serving way in the long run.

So, did Satoshi democratize the financial system? No, not really. He did the opposite: He create a system which turned the shark totally loose. Of course, the average programmer who doesn't understand much about economics - and we have a huge amount here on HN, more than believed for sure - it seems as if the bitcoin set's him free from the bank but that's not exactly the true. The problem with people vs banks are not the extra fees on money transfers: The problem is people NOT having money to put on the bank. Bitcoin doesn't make you rich. If you are rich you have just one extra toy. If you don't have money, there's no way you could buy bitcoin. Mining? Sure, but minings costs equipment. Only early adopters got an edge and made some money out of the huge price-spike. But this price-spike does promote, hoarding and opportunistic behaviors and in no way promotes democracy.

So although the bitcoin protocol is a huge step forward, because adjusts the double spending problem introducing a public ledger, the currency is useful as it has some attributes which you can't find elsewhere (speed, portability, etc.), but it's in no way more democratic or decentralized as many bigots would like to believe.

Sorry the long post and any grammar mistakes, it's late here and I'm kinda sleepy.

[1] In the US we have small % of population voting. That's an interesting problem: how to get larger part of the population interested in elections?

[2] http://en.wikipedia.org/wiki/Chair_of_the_Federal_Reserve#Ap...

[3] http://en.wikipedia.org/wiki/Black_Wednesday

[4] Bitcoin was not designed to be inflation: It's deflationary on purpose. No one would had any reason to own bitcoin if they were inflationary since you can't pay taxes with BTC.

hoggle2• 12 years ago

Democrati[z|s]ation to democrati[z|s]e:

• make (something) accessible to everyone: mass production has not democratized fashion.

Finance:

the management of large amounts of money, especially by governments or large companies: [ as modifier ] : the firm's finance department.

• monetary support for an enterprise: the clearing banks are important sources of finance.

• (finances) the monetary resources and affairs of a state, organization, or person: the club's finances are stretched to the limit.

Defintions, Oxford Dictionary.

I don't see how those two terms in connection with a decentralized system for issuing and controlling money are in any way at odds with comparing them to a decentralized system for communication. You need to elaborate more on what you want to say here.

retube• 12 years ago

This comparison is so erroneous that it's embarrassing

why? seems apt to me. Care to elaborate?

gutnor3• 12 years ago

I can't talk for GP, but I work in finance, so that comparison has me puzzled too.

Maybe I'm looking at it from the wrong corner, but actual money transfer is such a minor part of finance that the comparison is akin to "Internet Protocols has democratised Computer Science".

I guess what the NS is trying to say is that there are a lot of services that at the end of the day require money transfer (like bank account, credit card, escrow, ...). Until now such services needed to be backed by an underlying financial institution since there was no way to transfer currencies safely without them.

Now with Bitcoin, there is an infrastructure that is free to use. Theoretically, using that infrastructure, you could create banking service outside the traditional infrastructure (messaging networks, clearing houses, settlement banks, ...)

However, all those institutions bring a lot more services on top of money transfer. The internet revolution was the opening of networks, rather than HTTP itself. So Financial institutions acceptance, rather than public recognition really matters if that comparison is to hold. Right now, Bitcoin and other crypto-currencies are treated as a new type of asset, it is far from making any progress in the infrastructure side.

And of course, the elephant in the room are the regulations. The world is still recovering of the last financial crisis, the world mood is not really looking forward to less regulations. The best that can be hoped right is for Bitcoin to dodge regulations and become de-facto currency, rather than actual currency. IMO that would be a criminal-smelling loophole left there by the various regulatory institutions. Because let's face it, even with regulation, large financial institutions like HSBC have no trouble laundering drug cartel money, so they are the one that will most benefit it, not some startup in the Valley.

lampooned• 12 years ago

Bitcoin is not the future of money.

beloch• 12 years ago

The one thing that bothers me the most about bitcoin is it's similarity to a ponzi scheme. Get in early, mine the low-hanging fruit, wait for the exchange rate to spike, and you're set for life! If you were to buy in right this moment, what would be the benefit?

oleganza• 12 years ago

Many people misunderstand what the Ponzi scheme is. In Ponzi scheme you get a dividend without selling off your shares. The fraud here is to tell you that the dividends are taken from real profits while they are paid from extra recently sold shares. You get both cash and keep your stock.

Bitcoin is like a dividend-free stock or commodity: you have to sell your share to get some cash. Of course, those who come earlier get easier access to more shares, but they are exposed to a higher risk. Zuckerberg had 100% of Facebook initially and was selling it partially to get more cash to keep it going. When he started anyone could do the same, but not many succeeded. Later investors were willing to pay higher amounts of money when the value of the company became more certain in their eyes. But in each case, the owners of stock had to lose some part of it to enjoy extra cash.

Also, consider this approach: http://auroracoin.org These guys intend to distribute coins "fairly" to each individual in Iceland. Sounds like a fair distribution? Well, once some individuals get this weird coin, they will decide if they want to keep it. And some of them will sell them to collectors for cheap. This will make the price go down noticeably and cause more folks to get rid of such coins. So they will end up for very cheap in the hands of a very few "early adopters". Whether it will start growing organically from there or not - is another question, but you can see that you cannot force "equality and fairness" on the market. It will reconfigure itself according to everyone's personal preferences. And in case of a weird new tech it will always mean little number of early believers vs. big number of mainstream doubters.

asdkl234890• 12 years ago

Bitcoin is like a dividend-free stock or commodity

Yes, it is an asset. A very easy to trade purely electronic asset. Due to its easy tradeability it is similar to a currency, but much like stocks, it is not a currency.

Sammi2• 12 years ago

If Bitcoin is a ponzi scheme then all stocks are ponzi schemes. I would be a billionaire several times over if I knew to invest in Apple, Google, Netflix, Amazon, Microsoft, Dropbox, etc at the right time. At one point, it was common to be skeptical of these companies, and many of their peers did not make it. Who was to say at the time, that exactly these would?

You bought Bitcoin in 2011 if you believed it was a sound technology, that would inevitably get popular, and you still buy Bitcoin today if this is your conviction. It might not pan out, as there might be a severe flaw in the protocol, or something better might come along, so don't invest anything you can't watch burn. But if Bitcoin fulfills its promise, then there is still significant growth to be seen.

dschiptsov• 12 years ago

"future of money"... Could I respond to a silly meme with another another meme? "Stupid people, stupid people everywhere".

blahbl4hblahtoo• 12 years ago

No its not.

sigh.

fmdud• 12 years ago

I find it interesting how HN's opinion of Bitcoin fluctuates as wildly as the 'currency' itself.

Bitcoin: The future of money is at stake

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