Winklevoss Twins Aim to Take Bitcoin Mainstream with a Regulated Exchange

http://dealbook.nytimes.com/2015/01/22/winklevoss-twins-aim-to-take-bitcoin-mainstream-with-a-regulated-exchange/

by jvoorhis • 12 years ago

203 129 12 years ago

dealbook.nytimes.com

largote• 12 years ago

Hasn't this been known for months now?

jvoorhis• 12 years ago

Not to be confused with the forthcoming ETF [1], Gemini [2] is the first US-regulated bitcoin exchange.

[1] http://www.sec.gov/Archives/edgar/data/1579346/0001193125144...

[2] https://gemini.com/

ForHackernews2• 12 years ago

I think it's widely assumed that the ETF is a way for the Winklevii to cash out their bitcoin holdings.

Also: http://www.reddit.com/r/Buttcoin/comments/2rv44y/the_winklev...

bduerst2• 12 years ago

What competitive advantages does a bitcoin-based exchange in the U.S. have over other [U.S. or otherwise] exchanges?

GigabyteCoin• 12 years ago

It's easier to hold any fraudulant owners accountable if you are an American account holder, for one.

Also some clients feel safer knowing that financial regulators of some kind are overlooking the accounts and transactions of the business they are working with.

bduerst2• 12 years ago

I guess I should have been more specific. Other U.S. exchanges already have this, so what competitive advantage does bitcoins give an exchange?

rtpg2• 12 years ago

less risk of collapsing, maybe lower security risks (due to paying attention to regulations, but debatable).

It's probably easier to get faster payouts and the like as well, since banks will have less issue openly (snark intended) with a regulated exchange than money launderers.

snitko2• 12 years ago

"Our philosophy is to ask for permission, not forgiveness", Cameron Winklevoss said.

So, a complete opposite of what Bitcoin philosophy is. Gotcha.

obstinate• 12 years ago

One could easily argue in response that there's no such thing as bitcoin "philosophy." There's only what you can and can't do with the protocol. If they can implement their ideals under the strictures of what the protocol allows, that's their prerogative.

jedunnigan3• 12 years ago

So one might argue that that is a philosophy in and of itself. An agnostic one that is founded on technical specification, not moral imperative.

snitko2• 12 years ago

Of course it has a philosophy. Which is freedom from government regulation and coercion in finance (and, consequently, in everything). I challenge you to prove this isn't so when even Satoshi himself said that.

sillysaurus32• 12 years ago

This may be tangential, but it's been on my mind for awhile, so I was hoping to get your thoughts. If it's slightly offtopic, I apologize.

It doesn't seem like you can regulate BTC, and the reason is because of something unexpected: arbitrage.

(To be clear, you can create a regulated exchange, but that doesn't really help you. I'll explain why.)

When exchange A's price is different from exchange B's, that represents an opportunity. As the difference grows, that opportunity becomes more lucrative. That's why, at any given time, all exchanges are at roughly the same price.

But that means if one exchange is playing by some bad rules, or is acting in a shady way, like the behavior described in https://willyreport.wordpress.com/, then that directly affects every other exchange.

So unless all exchanges are playing by the same rules, having a single "safe" exchange won't save you. One exchange's shadiness will always affect every other exchange.

Whether this is a fatal flaw is a separate question. I don't think it is, but it seems hard to know.

What do you think? It seems true, but perhaps I'm overlooking something obvious.

Also, this is strictly about price manipulation. It's probably true that no amount of bad behavior at exchange A can result in a catastrophic failure of exchange B. But one question I've been trying to figure out the answer to is: does price manipulation even matter?

ForHackernews2• 12 years ago

You can try to arbitrage on an unregulated exchange, but then you're assuming the greater risk of getting Goxxed.

There are plenty of examples in financial markets where lower risk is correlated with lower returns, and this may be another.

rtpg2• 12 years ago

The issue with shady exchanges, they all seem to have the issue of collapsing overnight. So even if not playing by the rules will raise the prices, that might be counteracted by the major risk of you losing everything on the exchange. Or having everything seized by some gov't.

There's a reason they're called pyramid schemes

jafaku14• 12 years ago

There's a reason they're called pyramid schemes

Just because someone call something a pyramid scheme, it doesn't mean it is one.

bladecatcher• 12 years ago

>One exchange's shadiness will always affect every other exchange.

I don't think that is correct. A shady exchange will be avoided by market participants if it significantly deviates from a fair price.

TheOtherHobbes• 12 years ago

Has everyone already forgotten the LIBOR and FX price fixing scandals?

Markets are inherently shady, and there is no such thing as a 'fair price.'

If you can fix a market, you will. That goes double if you can fix it even more effectively with a price-fixing cartel - especially a state-sponsored one.

(Arguably this is what QE really does, only QE is quasi-legal.)

The only protection is good regulation. Markets on their own tend naturally to criminality and/or instability.

Karpeles was typical in that he was playing a variation on the usual games. But he wasn't professional enough to play them well.

Also, I'm not quite seeing the logic of promoting a currency system that has been proven to be trivially hackable.

(Although I suppose if you can get enough people to believe that next time will be different and your exchange will be the exception, there's certainly money to be made.)

vanzard2• 12 years ago

What you say is true and applies to ANY commodity market (or in fact any non-centrally regulated market): FX, precious metals, oil, textiles, fruits, etc.

I can set up my own independent exchange to trade, say, gold in the same way there are thousands of online gold exchanges. Then I can artificially inflate the gold prices on my exchange, using fictitious money (like the willy bot did), leading customers to come to me to trade their gold for high prices, and therefore impacting the worldwide market price of gold... at least a tiny little bit for a tiny little while... until customers find out that they can't withdraw their fictitious money from my exchange, so my sham and its impact ends right there. This is what happened to MtGox in February 2014.

The bigger the market you are attacking is, the less time it takes for the sham to be discovered, because the tiny percentage of people who try to benefit from the fictitious high prices quickly overwhelm your ability to fake solvency. A huge market like gold would pretty much suffer no effect due to its size. And as the Bitcoin market continues to grow, the hypothetical impact of such a sham should diminish over time.

vanzard2• 12 years ago

I wanted to add that naturally it is very costly to run this sort of attack. Because as you are artificially manipulating the prices, you have to keep paying out the customers' arbitrage profits. This is why willy caused MtGox to lose tens of millions of dollars in the end. Mark Karpeles was simply clueless or naive in thinking willy would help him. So don't do it, or you will lose money :)

In summary, I do believe regulation can and already does help BTC. They bring finance professionals in the market who have a clue (unlike Karpeles). They bring trust. They bring more trading volume. These are all things that make BTC less manipulable, hence less manipulated.

vtlynch• 12 years ago

Is there a difference when it comes to Bitcoin that makes it unique? In your example the majority of gold exchanges are regulated, arent they (if not, lets use a stock exchange as an example instead)?

In that situation the bad actor is unregulated, and the others are all regulated. With Bitcoin the opposite is true - only one exchange is regulated. Does this matter?

tomphoolery• 12 years ago

You're definitely right, especially right now as we're dealing with a sprawling market consisting of multiple exchanges with no laws or regulations governing them. However, I believe the Winklevoss twins (given past history) are looking to transform a burned-out shell into prime real estate. It may not be an appropriate example, but I look to GitHub: Is Git really that much better than Mercurial? If GitHub was called MercurialHub, would we all be using Mercurial right now?

(note: this wasn't an invitation to argue about whether Git or Mercurial is better...just trying to point out that sometimes, one company can have a massive effect on a community, especially a community that's small and devoted like Bitcoin but has no real banner to follow)

RemoteWorker4• 12 years ago

I chose Git over Mercurial because Linus made it, not because of some hosting startup that can be pwned by random guy with no previous experience in hacking.

dustingetz• 12 years ago

Your logic should also apply to real international financial markets, which seem to work well enough, so clearly this worldview is missing something

deciplex• 12 years ago

Historically, the common reason for a large discrepancy in price between exchanges is that one of them is insolvent. So the price is fictional in that case anyway: you can deposit funds there and "trade", but your principal and your profits are already gone by that point, anyway.

jim_greco• 12 years ago

An exchange's shadiness can only affect other exchanges in proportion to its market share. If there was price manipulation on Mt. Gox and it spilled over to all other exchanges then that was because Mt. Gox was the dominant platform for trading bitcoin.

FX in general is very difficult to regulate and there are a lot of shady firms and exchanges out there. However, I think it's hard to argue that the price isn't reflective of the true exchange rate. Over $5 trillion/day changes hands at a tight spread and very low volatility. Finance is based on trust and eventually legit venues get reinforced through a feedback loop.

totaleclipse314• 12 years ago

This is completely wrong.

There have been large periods where the degree of shadiness on certain bitcoin exchanges has led to large, and persistent price discrepancies. For example, during the huge bull run of late 2013, there was a large and consistent price premium for bitcoins on MtGox. The reason was that MtGox was not processing USD withdrawals in a timely way, but was processing bitcoin withdrawals. If you had tried to arbitrage the price on MtGox vs. Bitstamp or BTC-e, you would have found your money tied up in 3 week limbo while the withdrawal was processing.

sillysaurus32• 12 years ago

Your point is true, but unrelated to mine. I was talking about price manipulation and arbitrage in a scenario where there is no delay on withdraws/deposits.

To put it another way, if price manipulation is happening, you typically won't notice a price discrepancy. The reason is because of arbitrage. Since price discrepancies are lucrative, people will use arbitrage to take advantage (and hence eliminate) any price discrepancy. The end result is that the price was manipulated across all exchanges, even though only one exchange is being shady.

IkmoIkmo6• 12 years ago

1) it's not unique to bitcoin, happens in all markets.

2) it's very expensive to do. For example if you inflate prices at an exchange at 10% of market price, then you must pay that rate sooner or later when inevitably people sell at a 10% premium and cash out. If you run a ponzi, it'll collapse inevitably.

3) honest regulated exchanges that interface with other honest regulated aren't affected. The market is affected, but not the individual exchange. i.e. if Mt. Gox was still alive and this new Winklevoss exchange Gemini didn't trade with them, it wouldn't affect Gemini if Mt. Gox collapsed. Individual traders who traded at both Gemini and Mt. Gox would be affected, but that's the risk of trading on a crappy unregulated exchange. But the honest exchange itself isn't affected, it cannot result in a catastrophic failure like you say. (feel free to elaborate on that)

tl;dr: not unique to bitcoin, doesn't happen often because manipulating the market has a price tag and a risk tag, and while markets are affected by manipulation (obviously) one bad exchange cannot spawn failure or security problems or ponzis or insolvency at other honest exchanges from arbitrage efforts of its users. It just doesn't work that way.

rowyaboat• 12 years ago

One of the things I'm really looking forward to is USD/EUR denominated sidechain assets eg. https://tether.to

At present, arbitrage between different exchanges is easy if you are moving bitcoins, but moving USD is very time consuming and requires all sorts of verification. When the exchanges start accepting certain dollar denominated crypto assets you will be able to move USD between exchanges as easily as moving bitcoins. Liquidity and market efficiency and prices will all become extremely similar across markets. Any bad exchange will rapidly be shown up as a fraud as they will collapse within hours as any price differences or manipulation will be attacked by speculators. If anyone stops paying out deposits they will be called out within hours (vs. months and months when mtgox stopped paying out USD) and will rapidly lose credibility and collapse.

pakled_engineer• 12 years ago

I once looked into a pegged side chain type coin to make trading easier and it's impossible to do with certain currencies, especially USD. You become responsible for all trades with your token/coins, so if you sell 20,000 USDcoins to user A and they sell the coins to User B without following KYC/money laundering rules the feds come after you demanding ID for User B.

Same goes for CADcoin or GBPcoin, maybe EURcoin would be different but unlikely. You would have to set it up as a centralized service where all transactions req proven identity paper trail which in the end is just as cumbersome as using regular banks.

There's tons of other regulations like preventing your USDcoin from being used for online gambling, which is why Paysafecard must sell crippled PINs in US.

davidgerard• 12 years ago

http://www.thebtcindex.com/

Look at the spread there. Bitcoin is not short of coders who can automate obvious arbitrage opportunities, so spreads like that directly indicate just how damn hard it actually is to get ActualMoney out of them.

hueving• 12 years ago

After the losses they must have taken with the price decline this is probably a desperate attempt to boost the price.

laichzeit04• 12 years ago

Well, if I remember correctly, all the Winkelvii Bitcoins were bought for under $70, I'd say the average price is around $35-40, so no, they're still trading at 300-400% above what they bought them for. Not bad for a 2 year investment.

justincormack2• 12 years ago

Unsaleable in volume while maintaining that price though. Thats why they are concocting these schemes to actually get an exit eventually.

hnnewguy7• 12 years ago

Well, if I remember correctly, all the Winkelvii Bitcoins were bought for under $70, I'd say the average price is around $35-40, so no

I read far too many investing sites. Whenever a run-up and crash occurs in some fad stock, the proponents of said stock never seem to lose money. They always seem to be "still in the green". Amazing, really.

DigitalSea• 12 years ago

Considering just how much Bitcoin the Winklevoss twins own, it is in their best interests to do right by Bitcoin holders and create a secure and accountable exchange. Historically every bad thing that has happened to Bitcoin mostly indirectly has affected its price which from an existing investment perspective obviously sucks, but is great for new buyers to get into the market.

I have no doubt if they can pull this off that it'll be a successful venture, especially after the horrible year of 2014 which saw tonnes of cryptocoin exchanges (including Mt. Gox) get hacked and disappear, driving down the price each time. They have a bit of competition in the space, I think overcoming the regulation issues and having actual proper accountability will help bolster the credibility of the exchange.

hnnewguy7• 12 years ago

Considering just how much Bitcoin the Winklevoss twins own, it is in their best interests to do right by Bitcoin holders and create a secure and accountable exchange.

The executives in pretty much every corporate scandal, ever, held vast numbers of company shares.

drzaiusapelord• 12 years ago

get hacked and disappear

Is this the accepted narrative? It seems overly generous to bitcoin and the various exchange operators. A lot of these exchanges were shutdown by their owners so they could, with impunity, steal the coins of their customers and other dirty dealings. Hacker attacks, which are often used as cover for these criminal activities, seem to have been the least of bitcoin's problems.

I think overcoming the regulation issues and having actual proper accountability will help bolster the credibility of the exchange.

If I wanted to use an easy and stable regulated currency why not the USD? I can trivially pay using a variety of sources: my own bank, paypal, my credit cards, direct deposit, wire, etc. If bitcoin gets turned into a strongly controlled and regulated currency then I don't see its competitive advantage outside of very, very narrow use cases (darknet purchases, investing, ransomware, illegal activities, etc).

Ologn4• 12 years ago

Warren Buffett said Bitcoins are a mirage and I agree. They are worthless hashes. Why do they have any value? The answer is they have no value. I said so here when they were worth over twice what they are now. If there is any sign of a bubble in tech, it would be Bitcoin market cap. Which is $3 billion at the moment.

Who are the fools who exchange cash for them? Why do they have any value? Some people say you can use them as currency. You can use dollars as currency. Or gold. Some say it can transfer money, but so can wire transfers. Perhaps it is decentralized (who cares? Not I. Wire transfers work for me) etc. But gold has value, while Bitcoin has nothing. I remember during the dot bomb days when there were commercials for Flooz and Beenz.

The leaders in the Bitcoin community are being sued and jailed for fraud, the price has gone from $1100 to $230, yet suckers are still bamboozled to trade cash for these worthless hashes. It will go to $115, then $57, then eventually $0. I doubt all those who already lost money or who are being jailed will learn anything.

balladeer2• 12 years ago

Yes.

I mean I would never put my own money into something that is more volatile than the share market. At least in share market I can see it coming, except rate crashes and when that happens everything goes down not just my own holding.

It Bitcoin it can be a bug, a hack, or just many Bitcoin holders dumping Bitcoins. Also it never made sense to me that I could have been richer if I had access to those fancy super-fast CPUs to "mine" the Bitcoins. Maybe I missed the gold rush but then again I don't want to encourage another absurdly overpriced commodity which really have no meaning (or rather say "value") in real world except some overenthusiastic people and the "hoarders" trying to push it up.

jafaku14• 12 years ago

"Also it never made sense to me that I could have been richer if I had access to those fancy super-fast CPUs to "mine" the Bitcoins."

So that's where your hate comes from. I see...

donatj• 12 years ago

How is a piece of paper any more valuable than a hash though? They're all just place holders.

discodave• 12 years ago

The piece of paper is more valuable than the hash because more people will accept it as legal tender.

MarkMc• 12 years ago

The US dollar is backed by a promise by the US government to (a) keep the value fairly stable, relative to a common basket of consumer goods; and (b) accept them for payment of US taxes.

The long and stable history of the US government gives weight to these promises.

Ologn4• 12 years ago

It's instructive of all the commodities out there in the world, you point to the only other one of questionable value as an example, "unbacked" paper currency. But obviously just because people use dollars (or euros) does not mean Bitcoin has any value.

The answer to the question of why fiat money has lasted for 44 years is too much to go into in an HN comment. It can be answered in a questions like you did though.

Why, with 10000 years of civilization, if it is possible for a state to create non-precious currency of a lasting like gold out of nothing, why if this can be done, did states only start doing it in the past 44 years?

The US allowed dollar to gold conversion prior to 1971, if the dollar really is priced on its own accord, why does the US still maintain over 10,000 tons of gold in Fort Knox and other facilities?

In 1971, an ounce of gold was worth $40, today it is worth about $1290. Conversely, a dollar in 1971 would be worth about seventeen cents today. Why did gold retain its value but not the dollar?

hnnewguy7• 12 years ago

How is a piece of paper any more valuable than a hash though?

You can pay your taxes with it. It's really just that simple; that's what gives fiat its value. Your government accepts it, thus it's backed by the productive capacity of the country.

RemoteWorker4• 12 years ago

Why do they have any value?

Because people want them. And why do people want them? Because they find them useful for transferring wealth (see the remittances market: people no longer have to pay 10% or more to Western Union and banks), and as a store of value. It doesn't matter that you don't find them useful, or that you write angry comments. If you don't like Bitcoin don't use it, just like you don't use many other things. Unlike fiat currencies, Bitcoin is 100% voluntary, there's no violence involved.

cb183• 12 years ago

Because they find them useful for transferring wealth (see the remittances market: people no longer have to pay 10% or more to Western Union and banks),

Are people actually using bitcoin for remittances anywhere on a large scale? It seems the hassle of converting to and from bitcoin in the areas remittances are typical doesn't outcompete the X% fee until bitcoin is much more widely accepted.

If bitcoin was accepted everywhere or it was perfectly easy to convert to another currency, yes it would be great for remittances, but as things stand what advantage does it have in most cases?

Also, western union uses computer networks too, they don't actually physically transport cash.

IkmoIkmo6• 12 years ago

Did you spend any time at all doing basic research? Here's some thoughts on bitcoin:

http://dealbook.nytimes.com/2014/01/21/why-bitcoin-matters/

hnnewguy7• 12 years ago

I like Mr. Andreesen and all, but an Op-Ed by a VC heavily invested in Bitcoin technology constitutes "research"?

logn2• 12 years ago

What's the motivation for the twins to hold so much bitcoin? They're already taking on a lot of risk with their BTC business investments. Is it just to show faith in themselves and the coin? Or are they so confident that it makes sense to them? Personally I'd want to diversify.

Synaesthesia• 12 years ago

They bought a lot of bitcoin before the late 2013 bubble. I think they're quite diversified - they're just Bitcoin proponents who are taking a chance, kind of like venture capitalism.

wmf• 12 years ago

Wasn't CampBX the first US Bitcoin exchange? And then TradeHill and then Coinsetter and then Digital Currency Group? And then there's LedgerX...

Animats2• 12 years ago

The regulated exchange thing is interesting, but I want to see the details. The expected way to do this would be to register with the SEC as a broker/dealer, like every stockbroker does. That gets SIPC insurance protection (for which the broker pays), and means FINRA enforcement and audits, background checks on the principals, and such. It also eliminates the need for state by state approvals.

So far, no Bitcoin exchange has done this. Over half of them have gone bust, often taking the customers' funds with them. This is not a coincidence. There's a lot of big talk about how some exchange is safe. Coinbase doesn't have a real business address and has "it's not our fault if we lose your money" terms of service. Most of the others are worse. After seeing the terms of the Winkelvoss EFT, which are awful (if they lose the Bitcoins, they're not responsible), I suspect this new exchange may be equally sleazy.

IkmoIkmo6• 12 years ago

In fairness, Coinbase has

1) A multi-sig product, meaning you can store money using their product purely as a software layer. You control the private keys and you have full autonomy. If they disappear or go bankrupt your money is still as safe as you kept it.

2) USD wallets are kept in an FDIC insured bank account. As a money transmitter without the proper licenses they're not allowed to invest custodial funds or use them to finance business operations.

3) They're pretty reputable. Fred Ersham is one of their principle agents and on their board, just like Chris Dixon. They've got a great legal team, guys from big startups like Facebook or AirBnb as well as big finance firms like Goldman Sachs and Visa. They've received $106m in funding at close to half a billion in valuation and partner with Paypal and process payments for fortune 100 companies worth tens of billions of dollars, their investors include top VC firms, the New York Stock Exchange, a megabank and one of Japan's largest telecom companies. they're registered with Fincen and have licenses in 15+ states. That may not protect them from tech failures, but these aren't the type of people who operate an anonymous company that's super shady and will disappear and leave you with no recourse.

4) They store the vast majority of funds in cold storage. I can't argue how safe this is as not much is disclosed. But I do know that cold storage is pretty easy to set up and that their basic descriptions include a lot of redundancy and distributed trust. The gist of it is that keys never hit any network (not hackable) and are stored physically, encrypted, in locked vaults in the same banks we've trusted with storage of value, and require multiple people in different geographical locations to unlock funds. No system is perfect but this is a very secure system. 97% of funds are stored in this way, you can read a bit about it here:

https://www.coinbase.com/security

5) Their bitcoin funds are insured. The insurance includes cyber security, accidental loss and employees going rogue. Insurance is through Aon ($11b revenue in insurance premiums) and they claim only to use A+ underwriters according to S&P ratings.

Again, they're not perfect and there are certainly issues I can point out and more details I'd want to receive more information on. But if I could make a bet on (or an investment into) Coinbase I'd be very comfortable making it.

I do share the sentiment that many exchanges and bitcoin services just aren't anywhere close to bank-grade security. That's just a function of a new and nascent ecosystem. It happens in every industry and it takes a long time to get up to speed. The problem is that bitcoin is extremely sensitive because it's about carte-blance value tokens essentially, it's an extremely sensitive industry for this reason, so there's not much room for amateur-hour. But I think Coinbase, and the likes of say Xapo or Circle, and potentially Gemini, show that we're seeing an entirely different class of entrepreneurs from the likes of say last year's Mt. Gox, already.

Completely holding judgement on Gemini. I know the twins are going to strive for complete regulatory compliance, and that they're already rich and want to build a solid long-term reputable business, not a get-rich-quick scheme, and that they've got the funds to hire the right people and besides financial capital have some human capital in the VC/Tech space in their networks. So there's certainly the potential for this to work out, but we'll have to see.

Animats2• 12 years ago

Their terms: "THE LIABILITY OF COINBASE, ITS AFFILIATES AND SERVICE PROVIDERS, OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS, JOINT VENTURERS, EMPLOYEES OR REPRESENTATIVES, TO YOU OR ANY THIRD PARTIES IN ANY CIRCUMSTANCE IS LIMITED TO THE LOWER OF (A) THE ACTUAL AMOUNT OF DIRECT DAMAGES; OR (B) FEES PAID TO COINBASE BY YOU IN THE PRECEDING THREE (3) MONTHS."*

So if you deposit with them, and they lose it, the limit of their liability is limited to the fees you paid them. Which is zero for their so-called "vault".

That's a totally unacceptable EULA for a depository institution.

Their insurance only helps you if you are a beneficiary of the insurance. That's the case with SIPC (all US stockbrokers) and FDIC (all US banks) coverage, but not at Coinbase.

Live by the EULA, die by the EULA. Those guys are no better than the other low-rent Bitcoin exchanges.

gnaritas3• 12 years ago

Coinbase is not an exchange, they're a broker; you go there to buy Bitcoin, not to trade it.

stream_fusion• 12 years ago

They should carefully consider the possibility of creating a decentralized exchange (like bitshares or nubits) and not merely a new centralized exchange for a decentralized currency (bitcoin). There will be a future for blockchain technology that can eliminate MtGox type events.

RemoteWorker4• 12 years ago

Why would they want that? You know they aren't working ad honorem, right?

wcoenen• 12 years ago

Decentralized exchanges are problematic when you are exchanging with traditional currencies. The traditional currencies have to sit in some bank account, so either you trust some third party to hold it for the traders during the transactions (e.g. escrow or a centralized exchange) or you introduce counter party risk.

Bitshares is a decentralized ledger for equity. Nubits is a system that attempts to stabilize the price at 1 nubit = 1 USD. Neither solves this problem of having to trust someone when you exchange for traditional currencies.

cb183• 12 years ago

The twins say none of this has dented their faith in the promise of the technology — they say they continue to hold every Bitcoin they ever purchased

This is a common refrain seen around /r/bitcoin as well.

If few people use it as a currency now, and the majority of people that buy it simply sit on it hoping it will appreciate, why do people think lots of people will want to use it as a currency in the future?

If cryptocurrencies were to become significantly more user friendly in the future and there was an economic niche revealed where their use made sense for lots of people, wouldn't people be more likely to choose a cryptocurrency that didn't come with a built in rentier class of people who have piled up large amounts of the cryptocoin while praying that a vapor future demand be made manifest?

The twins have placed themselves firmly in the camp of those who believe that Bitcoin will survive only if it has regulatory oversight.

At present bitcoin's two main use cases seem to be buying recreational drugs[0](which I have no problem with) and paying for things related to computer fraud(which I think is a destructive waste of time by misguided minds.) Both of these things are presumably things that regulators would like to regulate out of existence as best they could. So if they are even partially successful in doing that, what is going to drive the demand for bitcoin?(tell me something other than remittances, or if you insist on remittances then please explain why if it is not a suitable option for many now, how it could become one in the future.)

- - - -

[0] As a side note on this, bitcoin does seem to be very well suited to the online drug trade, it of course has already proven itself in this area, but from my outside perspective it seems current or potential future problem areas are the on and off ramps, the exchange between fiat and crypto. But imagine if the loop could be closed between the drug buyers and sellers.

So after a drug dealer has accumulated a large amount of crypto, he'll need to convert it to a more widely accepted currency to pay for the cultivation/production of more drugs, food, housing, etc. I guess the current method is to use a mixer then cash out at Bitstamp or btc-e or something, but say that bitcoin becomes regulated to the point that this becomes much more difficult to manage. So to close the loop, using bitcoin or another crypto, the drug dealer with the accumulated crypto sells to a network of crypto dealers, these crypto dealers then sell to a smaller hub in the network and on and on until the drug buyer instead of going over to the neighborhood weed dealer, goes over to the neighborhood crypto dealer, then buys his weed online with the crypto.

There would likely need to be some profit incentive in this, so maybe the drug dealer would sell their cryptocoin to large hubs in the crypto dealing network at a discount in exchange for not dealing with more onerous regulated off-ramps, that discount then gradually being reduced as the crypto radiated out through the network.

Of course with the way drug laws are being re-developed, hopefully all of this becomes moot in the not to distant future.

RemoteWorker4• 12 years ago

Ah, the good old "if no one uses it as a currency it will die, so you have to spend it!" argument. The answer is that we are using it: as a store of value. But every time we explain this, detractors will invariably reply either that it's not a good store of value because it went down in <insert cherry-picked timeframe>, or that saving is bad for the economy because central bankers say so.

For these sort of questions, simply compare it to gold: Is it dying because "no one is using it" to buy groceries? Does it sometimes go down, and yet a lot of entities, including central banks, consider it a great store of value?

stock_toaster2• 12 years ago

  > For these sort of questions, simply compare it to gold

I can't wait to see people wearing bitcoin jewelry...

cb183• 12 years ago

With regard to 'store of value,' there are two sides to the coin, if you will.

For something to work as a store of value, there's got to be some other aspect of it that has a value/utility in another way. For gold this is it's resistance to corrosion, millennia of history, for the usd it is its broad acceptance as a medium of exchange, I could even store value in something like canned goods, or toilet paper, or firewood, or soap, or solar panels...

With bitcoin the case could be made that the structure of its network is this other side of the coin, intrinsically valuable aspect of it. That might bear out and more people might gravitate toward that, but that is far from a given at the moment. (do keep in mind that this aspect of it is endlessly replicable open source software, so it really boils down to the community, brand, ethos... that is built up around a given cryptocoin network. Another differentiating aspect I suspect we will see more of is innovative distribution/mining models. And then the other thing that establishes a currency is that it has to be the sole coin of the realm in a given realm/economy no matter how small, which we have seen you could say in the darkmarkets, but I think something along these lines but a little more 'legit' is what is really needed to see a cryptocoin take off.)

So it's my view that by saying it is being used as a 'store of value' before it has established utility/gained currency in a significant way in other realms is putting the cart before the horse. And that's why I'm asking if all the people that are just sitting on it, so sure it's going to take off in one way or another, how is it going to take off? What is it going to being used for? Also, that sounds less like a store of value and more like a calculated risk/speculative purchase.

As mentioned in my previous comment, I also see its current primary use as a 'store of value,' i.e. a land grab in attempt to profit from speculative future uses, as being a hindrance to its use in any of those speculative future uses.

moonfern• 12 years ago

Almost everyone using gold does it for it's symbolic value. Those uses cases involve tiny amounts compared to the monetary one.But that symbolic use is so old and it fulfills such an important need of humans that it's momentary value is guaranteed. Albeit something "like more worth than most materials".

justincormack2• 12 years ago

See the Capitol Hill Baby Sitting Co-op[1] for how real life hoarding of stores of values mean that exchange completely stops. It is a classic currency story.

[1] https://en.wikipedia.org/wiki/Capitol_Hill_Babysitting_Co-op

hnnewguy7• 12 years ago

The answer is that we are using it: as a store of value

Money serves no purpose beyond a convenient means for economic transactions and paying taxes. There is no magic behind it, nor is it meant to be a long term store of value. It has to turn over to be useful. So if you're holding Bitcoin as a store of value (relative to what?) then there is no point comparing it to money.

There's also a difference between "saving" and "hoarding".

cyphar• 12 years ago

I don't understand why you would want to have a regulated exchange for a currency that's designed to be deregulated. That seems counter-productive for the entire BitCoin community.

beaner• 12 years ago

"deregulation" isn't a religion. Just because there are options to use it in a way outside of regulation, does not mean all uses have to fall under it. Forcing that is like forcing anything else, and would be more statist than libertarian.

Bitcoin provides the option to remove yourself from the system if you decide that for you, in your personal context, it is the right thing to do. It's the option that matters, not just doing it for the sake of it to follow someone else's concept of what's important.

kolev• 12 years ago

No news here. They keep high hopes that if they pull this off, they can save their huge investment in Bitcoin, but a legit marketplace does not equate to an evergrowing price.

digital-rubber10• 12 years ago

Is there already a company that tied the 'donated' cpu power to a real product with revenue/profit to a crypto currency?

I mean all these hashes are nice and all, but the little magic math hash.. is about as valuable as a painting. Whatever the idiot gives for it.

Imho, if there is a real product developed with the donated cpu power in exchange for crypto coins which stand for a money value in relation to the developed product/medicine etc.

Like combining distributed computing, crypto currency and a product (e.g. medicine) which we could all benefit from. And those miners aren't simply wasting electricity.

Yes i consider bitcoin, and sort in current form, mining a waste of electricity.

jafaku14• 12 years ago

The hashes are not being "wasted", it's the cost of Proof of Work. By definition, it can't be useful for something else. It has to be "wasted". I can't understand how you can see that it's being used to secure the first decentralized digital currency ever, that people all over the world are already using, and at the same time say it's being wasted.

digital-rubber10• 12 years ago

Hell yes :)

Bitcoin is similar to a pyramid scheme. Started mining early? You are rich! Started mining yesterday? you are screwed. And the more people get interest, the more fopping rich (i still think bitcoins have zero value), increasing value their mined coins will have.

Don't be so naive please.

fdsary• 12 years ago

What mining does in Bitcoin is to generate consensus, so that everyone agrees on the financial history, which === keeping track of what public key owns what amount.

The actual hashes are pretty worthless, but that's the service mining is providing. Personally, I think it's kinda worthless to build a bunch of skyscraper on perfectly fine land just to fill with people working for some bank, just to keep my $ secure. For my intents and purposes, having a bank company (with employees, offices, leaders who get compensated like kings, etc) is a bigger waste that I can't wait to get rid of. Same with my VISA debit card, employing thousands just to let me access my money. Also charging a 3% fee on every transaction.

If only there was some kind of network of computer programs that could replace those people...

digital-rubber10• 12 years ago

Consensus of what? That early miners could mine a bit coin everyday and now you have to mine for 3 months to find one?

maxerickson3• 12 years ago

This has little to do with the linked article and has been gone over repeatedly. Stack Exchange points out some of the problems securing a blockchain with 'useful work':

http://bitcoin.stackexchange.com/questions/20879/why-cant-we...

digital-rubber10• 12 years ago

It's about bitcoin, exchange of value, etc. Seems quite related to me. Thanks for the link though.

And just because something has been discussed more often, doesn't mean it should not be mentioned at all?

digital-rubber10• 11 years ago

http://foldingcoin.net

nly2• 12 years ago

I don't see the lack of a regulated exchange as a show-stopper for mainstream adoption. I remember when people were generally uncomfortable with PayPal because the whole idea of an online wallet that wasn't provided by a bank just seemed unsafe. It was pull of eBay, the killer use case, that overcame that in the minds of everyday people, not regulation coming along and making it safer. Online wallets added value.

Imho, Bitcoin is and will continue to be an interesting niche until someone comes up with something truly compelling to do with it that you can't do with traditional currency or banking. A regulated exchange is nice for traders and financiers, but it's still just a boring old exchange... another friction ordinary consumers have to overcome to walk the blockchain life.

ssharp• 12 years ago

I've never been that bullish on Bitcoin because I don't see why the mainstream, developed world would have much demand for it. It certainly has it's uses, but they are limited. I suspect the number of people transacting in Bitcoin are far out-numbered by the people who are mostly hoarding Bitcoin, which illustrates it's lack of valid use-cases.

minthd• 12 years ago

I once thought that bitcoin's usage as a secure decentralized database, not as a currency, would be the source of some major use. But there are no big results here, so now, not so sure.

YesThatTom2• 12 years ago

While I hope Bitcoin ultimately succeeds I know the early investors will lose millions building infrastructure that gets thrown away when late arrivers come and blow away the early adopters.

It couldn't happen to a more deserving set of twins.

cpwright• 12 years ago

I found it interesting that they chose Gemini as a name for an exchange; given that the ISE runs already runs an options exchange named Gemini.

Winklevoss Twins Aim to Take Bitcoin Mainstream with a Regulated Exchange

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