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That's not the analog; the analog would be the externality effect. An individual lowering (excessively high) prices imposes a loss on themselves but creates a positive externality on all other individuals; since the externality is never internalized, price adjustment is underprovided. If price adjustment is costly, the problem is even worse.

Wages are not thought to be sticky for this reason (real wages are not as obviously anticyclical as the argument would imply.).

See in context

8 [LINK] Two articles on Bitcoin

by David_Gerard

16th May 2011

1 min read

8

Tangential, but a subject of some local interest:

Why Bitcoin will fail by Avery Pennarun. "The sky isn't red." Thesis:

The gold standard was a bad idea.
Even if it [Bitcoin] was a good idea, governments will squash it.
The whole technological basis (cryptosystem) is flawed.
It doesn't work offline.

I'm not sure I buy these and am not competent to evaluate his claims on 3., but would like others' critique.

L019: Bitcoin P2P Currency: The Most Dangerous Project We've Ever Seen by Jason Calacanis. A rather more enthusiastic viewpoint of the project:

Bitcoin is a technologically sound project.
Bitcoin is unstoppable without end-user prosecution.
Bitcoin is the most dangerous open-source project ever created.
Bitcoin may be the most dangerous technological project since the internet itself.
Bitcoin is a political statement by technological libertarians.
Bitcoins will change the world unless governments ban them with harsh penalties.

The actual text contains many more caveats than the eye-catching selection of points above.

Cryptocurrency & BlockchainFinancial Investing

Personal Blog

8

Mentioned in

390Reliable Sources: The Story of David Gerard

26Less Wrong used to like Bitcoin before it was cool. Time for a revisit?

9General Bitcoin discussion thread (May 2011)

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[-]nazgulnarsil14y70

Pennarun's article isn't worth reading.

[-]blogospheroid14y40

A rationality and bitcoin related question.

When does the Singularity institute plan on redeeming any bitcoins it gets as donations?

Immediately.(the dollar perceived as a better store of value than bitcoin, any given moment of time)
Wait for a while until a signal comes which boosts bitcoin value like a major e-store accepting it.
Wait until all the dollars run out (Bitcoin perceived as a better store of value than the dollar)

[-]Vladimir_M14y30

The first article is spectacularly clueless on (1) (he simply lacks the relevant knowledge to express an informed opinion on the topic one way or another), but pretty much completely right on (2). I lack the expertise to judge the claims on (3), and he's clearly wrong on (4). So it's one or two out of four, depending on whether his claims about (3) are correct.

As for the second article, it says "Bitcoin is unstoppable without end-user prosecution." Well, duh, many things would be unstoppable without prosecuting the people involved in them. So they get prosecuted. Unless you're a rare expert ready to go to extraordinary lengths, there is no anonymity on the internet if the government is decided to come after you.

[-]matt14y30

As for the second article, it says "Bitcoin is unstoppable without end-user prosecution." Well, duh,…

It's not quite "duh" - the original Napster and eGold died because the US Government could prosecute those who ran the services, at much lower cost (both monetary and electoral) than prosecuting enough users of those systems to kill them. It's a point worth making that Bitcoin doesn't have a single central hub that can be killed easily.

Unless you're a rare expert ready to go to extraordinary lengths, there is no anonymity on the internet if the government is decided to come after you.

But there's practical anonymity in a large enough crowd.
I would be surprised to learn that most Bittorrent pirates took reasonable security measures, yet Bittorrent piracy is hard to kill due to its popularity and its decentralised design.

[-]Vladimir_M14y40

It's a point worth making that Bitcoin doesn't have a single central hub that can be killed easily.

Things that can't be shut down centrally may continue indefinitely under crackdown, but their scope will be drastically reduced, and they will be done only by a handful of very seedy and/or reckless individuals. Even mild and sporadic enforcement (such as e.g. that practiced against drug dealing) is enough to make the activity out of bounds for respectable people and legal businesses. Really severe enforcement would make even the seediest people think twice.

Thorough and effective law enforcement is an easy problem for modern governments as long as there is the political will to do what is necessary. This is often not the case for a variety of reasons, but you can bet there will be plenty of political will if Bitcoin ever becomes subversive on a large scale.

[-]timtyler14y00

It's a point worth making that Bitcoin doesn't have a single central hub that can be killed easily.

Couldn't the government simply declare trading in Bitcoins illegal - if it so chose? If someone publicly says they accept Bitcoins, the government could do a sting-operation on them, to verify this - and then punish them. Users would pretty quickly be driven underground.

[-]cata14y30

I like Avery but I thought his critique was an ill-thought-out mess.

1) I'm not informed enough to judge whether the gold standard is a fundamentally good idea or not, but I can see that Avery is even less informed than me. Some of his (bolded!) statements like "Gold is a stupid inconvenient currency that's worse than paper" are basically nonsensical; that has nothing to do with the economic argument for a gold standard. Much of the rest seems to be non sequiturs, bringing up only briefly (and then dismissing mockingly) any real reasoning for a gold standard. Anyway, if we really wanted to, we could add inflation to Bitcoin too.

2) I think that governments will try to squash it, but I'm not sure if they can succeed. Bitcoin exchanges are starting to proliferate in multiple countries around the world, and the USG can only do so much to stop people from using them. In the future, I think it could continue to thrive even if the USG tried to seize American Bitcoin-related assets and prevent Americans from transferring money directly to Bitcoin exchanges. There are just too many ways around those laws -- c.f. online poker legislation. I think this is the most powerful point Avery makes, though. If the USG acted now to attack Bitcoin users, I could envision people drastically losing confidence in the currency and a resultant death, but the government is slow to act.

3) I share Avery's fundamental skepticism but Bitcoin is really pretty simple; it's pretty hard to imagine a mystery vulnerability in it short of busting SHA-256. I agree that it's a little bit unnerving to imagine our entire financial system sitting on something like Bitcoin, but I'm not sure whether it's rational to reject it based on that. If Bitcoin's benefits really are significant, I think we could probably do further work to prove its security. Avery should actually take half an hour and figure Bitcoin out before he makes such a critique.

4) Somehow he managed not to even point out why it's important for a currency to work offline. Credit cards don't usually work offline, and we use those often enough. What's the big deal? If this turned out to be really important, one could imagine middlemen with reserves of Bitcoin issuing physical currency, similar to how a currency backed by the gold standard would issue physical currency that represents quantities of gold -- as much or as little physical currency as we care about.

(edit: in the spirit of jim's disclaimer above, I also own a very small handful of bitcoins, so I may be biased.)

[-]mutterc14y60

I'm not informed enough to judge whether the gold standard is a fundamentally good idea or not

Here's Krugman's tale of the babysitting co-op, a nice illustration of how and why manipulation of the money supply is useful. A gold standard prevents such manipulation, short of changing the gold exchange rate, digging up gold, or locking it away in a fortress.

Now you're informed.

[-]cousin_it14y90

I don't completely understand that story. Why didn't they start babysitting for half a coupon?

[-]SilasBarta14y100

That is basically the pro-gold standard/anti-Keynesian response to Krugman's argument, and I'm impressed (albeit saddened) that you could come up with the major, current counterargument so quickly.

I think you understand the story perfectly, and now sympathize with one half of the economics community on the issue of monetary equilibrium.

Incidentally, what would be the market price for co-op credits if people knew in advance that the co-op could arbitrarily decide to flood the market with (face value 1/2 hour) credits? Or of US dollars if people knew in advance that the government could decide, at its whim, to redeem the dollars for less than 1/20 ounce of gold?

There's a disturbing tendency of all the anti-gold standard arguments to assume away the harms of horribly defaulting on a promise made in the generation of a currency. It's just like arguing that a business venture could increase its profitability if it could just repudiate all its loans without penalty. True, but irrelevant.

[-]cousin_it14y00

Why saddened? And what is the other side's standard response to my (apparently well-known) question? I admit I don't know economics at all :-(

[-]SilasBarta14y50

Why saddened? ... I admit i don't know economics at all :-(

Because of what it says about economics -- that an outsider can reach the same conclusion, for the same reason, as (half of) the "experts". Remember the "layshadow test"? If an academic field is such that a layperson can come in, spend a few hours, and produce output indistinguishable from people who have spent years "learning" the field, then that field is lost because the inferential distance is low, implying little knowledge accumulation.

That's what seems to be going on here.

And what is the other side's standard response to my (apparently well-known) question?

I just found out there's a Wikipedia article about the debate. It doesn't give the response to that critique, but as far as I know, the response is that it requires flexible prices throughout the economy and won't work if prices are "sticky".

Correction: Here's another critique from there:

Mitchell criticizes this because, he asserts, the falling wages of babysitters only solves the problem if it reduces the desire of couples to save, which is not supported by any research.[9] The only effect of falling wages would be to increase the real value of nominal contracts. In other words, couples would have to spend more time babysitting before they acquired the amount necessary to leave the cooperative. Mitchell concludes that the problem is greater aggregate desire to save than can be funded by existing administrative debt, and that the solution is thus either to reduce (desire for) savings or, more likely increase spending by simply issuing more scrip.

[-]Eugine_Nier14y10

Because of what it says about economics -- that an outsider can reach the same conclusion, for the same reason, as (half of) the "experts". Remember the "layshadow test"? If an academic field is such that a layperson can come in, spend a few hours, and produce output indistinguishable from people who have spent years "learning" the field, then that field is lost because the inferential distance is low, implying little knowledge accumulation.

I'm not sure that's always true. For example, in my field, mathematics, there are a lot of results that are much easier to explain and learn then they were to discover.

[-]Vladimir_M14y50

I'm not sure that's always true. For example, in my field, mathematics, there are a lot of results that are much easier to explain and learn then they were to discover.

With any NP problem, it's much easier to verify the result than to come up with it. What you describe probably fits this pattern.

In economics, the problem is not that established results, or even open problems, are easy to explain. The problem is that credentialed experts keep arguing about toy problems that are easily explained to a layman, and are unable to produce any insight beyond what an intelligent layman would also be able to figure out quickly. What's more, they can't even reach consensus that the problem is intractable, each arrogantly claiming that his ideologically favored theory is correct, and his opponents disagree because they are delusional or dishonest charlatans. (The latter is usually expressed more diplomatically, though it's actually quite common even for top-rank economists' writing to drip with unconcealed scorn and contempt of the most arrogant sort.)

[-]Vladimir_M14y30

I also wonder how come they didn't start trading coupons for cash. (Or maybe they did but won't tell?)

[-]mutterc14y30

I haven't finished a GED in Economics, but I would assume nobody would want to start doing that because, if you're the only one doing it, you will perform twice as much babysitting as you get.

The analog in the real market would be downwards-sticky wages (that is, workers are very resistant to cuts in pay, even more so than layoffs; that's why employers are more reluctant to cut wages of existing employees than to just get rid of them).

[-]porcupineadvocate14y30

Wages are not thought to be sticky for this reason (real wages are not as obviously anticyclical as the argument would imply.).

[-]SilasBarta14y20

A follow-up: I think the main sign of poor economics discourse in Krugman's article is that he didn't even think it necessary to pre-empt your obvious counterpoint, thereby making his argument woefully incomplete. It would have been a lot more productive if he had added, "It wouldn't do any good to sell babysitting services below the coupon face value, because ____. This corresponds to ____ in the broader economy, which is bad because ..."

Also, I agree with Vladimir M.

[-]satt12y00

Would there be any economic difference between (1) the couples all deciding to babysit for half a coupon and (2) doubling the number of coupons each couple has? The two choices seem functionally equivalent to me but I might be missing something.

[-]RHollerith14y00

even if the US tried to seize American Bitcoin-related assets and prevent Americans from transferring money directly to Bitcoin exchanges . . . [T]here are just too many ways around those laws -- c.f. online poker legislation.

Online poker is not a fundamental threat to the government's ability to collect taxes like Bitcoin is. Also, online poker as far as I know is not a generally useful tool in the commission of crimes and acts of terrorism.

[-]David_Gerard14y50

Online poker is not a fundamental threat to the government's ability to collect taxes like Bitcoin is.

Anecdotally - I've seen multiple British people (including geeks at Dorkbots, who I would have thought more open to libertarianism without necessarily conflating it with conservatism - admittedly, the two correlate pretty closely in the UK) utterly outraged at the prospect of various schemes for alternate currencies, open currencies, etc. Their objection? They see the possibility this stuff can't be taxed, and get outraged at the idea, because they have a keen appreciation of just what taxes buy.

I haven't seen Australians get anywhere near as outraged at such ideas as the British do, for example. Many British people seem to consider taxability a strong feature of a financial system. I predict they won't like Bitcoin at all and so it won't gain traction in the UK unless the government pushes it heavily, which isn't going to happen.

[-]SilasBarta14y10

Bitcoin doesn't do anything to prevent taxation of real estate or otherwise conspicuous property (which, incidentally, I find to be superior forms of taxation anyway). The government says, "this land is worth X GBP, pay y% of that or be evicted". It doesn't need to follow trillions of transactions to get that to work. It only has to follow transactions related to transfers of such conspicuous items, which (unlike with other valuables) it has significant control over due to people's need for government to recognize that ownership.

For example, if a gold coin is stolen from you, "good luck getting it back", but if a horde somehow decided to "steal" your house, the government doesn't have any problem eviicting them and giving it back to you. Since people want the government's title registries to recognize their ownership of a house, I suspect they would play along and disclose purchase price in home sales. (And this is all assuming the government will bother to get property valuations correct in the first place...)

[-]David_Gerard14y10

taxation of real estate or otherwise conspicuous property (which, incidentally, I find to be superior forms of taxation anyway)

What are the examples you're thinking of of countries who get the major, or even a substantial, proportion of general revenue from land taxes rather than income and/or sales tax?

[-]playtherapist14y80

It's a state, not a country, obviously- but until recently New Hampshire had not sale or income tax. The government was funded almost exclusively by real estate taxes and government run liquor stores.

[-]SilasBarta14y20

None, but it becomes a bigger fraction as transactions become easier to hide. This phenomenon is mentioned in an article by Paul Birch and my nemesis. (Edit: actually, that article doubles as a warning of how governments are likely to respond to the difficulty of monitoring transactions, and it's neither pleasant, nor the kind that brings about revolutionary change.)

The reasons I had for deeming it superior are that:

It's more transparent and hard to privately evade.
It doesn't require extensive monitoring of all the transactions in the economy.
It doesn't punish people for engaging in Pareto-optimal transactions (working for someone, buying something, etc.)

[-]Matt_Simpson14y-20

That's one thing that (i think) most economists do agree on: the first best tax scheme is a land tax scheme - on the value of the land, not the value added (by building houses, apartment buildings, or skyscrapers).

This is politically infeasible and measuring the value added is difficult, so the second best most economists push for (i think) is a sales tax which at least doesn't discourage productive behavior.

The income tax, on the other hand, is just a terrible idea.

[-]David_Gerard14y00

The income tax, on the other hand, is just a terrible idea.

Is this your statement or that of economists? (I ask because the rest of your post is about what economists say.)

[-]Matt_Simpson14y00

Both, though like the other statements about what most economists think, I'll note that I'm not super-certain.

[-]blogospheroid14y-10

Many economists do support the land tax, but think it is too low to support government functions. I think a better criteria is - restrict the government only to the extent that you can support with a land tax, since a land tax is basically the approrpriation of a positive externality(civilization all around you)

[-]Matt_Simpson14y00

Many economists do support the land tax, but think it is too low to support government functions.

Why can't the rate just be set higher?

[-]blogospheroid14y00

When the tax approaches the rent of the property, the capitalised land value drops to zero. If the land tax is based on percentages, you'll have the rate escalating way beyond 100%. No problem for homo economicus, but most real world people would be shocked by seeing property tax rates of 100000%.

[-]cata14y00

I'm not sure I agree. Firstly, I bet that people have laundered plenty of money using online poker, and failed to report taxes on a lot of it, too. (Although obviously there's a difference in scale between a proposed new replacement currency and poker players' chips, and Bitcoin's anonymity makes it much easier.)

Secondly, what makes it much easier to evade taxes by failing to report Bitcoin payments than evade taxes by failing to report cash or check payments? Taxes work because enough companies and individuals pay them voluntarily that the cheaters can be cross-checked into oblivion. I don't see why people would be more likely to cheat if they were transacting in Bitcoin instead of cash.

Consider also the USG's attempts to enforce IP laws. Lots of sound and fury, but totally ineffective so far in actually curbing copyright infringement by individuals. And you know a lot of lobbyist money must be going towards trying to get those laws working. If people ever care about using Bitcoin as much as they care about downloading an album quickly and easily, then it seems to me that government is in trouble.

[-]David_Gerard14y40

Taxes work because enough companies and individuals pay them voluntarily that the cheaters can be cross-checked into oblivion.

Taxes work because people like me - highly-paid middle-class employees - find them almost impossible to dodge. Everyone else is the fluff on the side - it's PAYE (pay-as-you-earn, where taxes are withheld from your earnings) employees who are the backbone of government revenue. And, increasingly, sales taxes. In both cases, the pressure point is businesses, of which there are far fewer than there are citizens.

[-]SilasBarta14y50

I hadn't seen that term, so for others who were in my position,

PAYE = Pay as you earn (presumably payroll taxes)

[-]David_Gerard14y20

Yes, sorry, clarification added.

[-]RHollerith14y30

Secondly, what makes it much easier to evade taxes by failing to report Bitcoin payments than evade taxes by failing to report cash or check payments?

Really? OK, I will assume you're serious and not joking. A check is drawn on a bank or savings and loan or such, and banks, etc, are heavily regulated and audited by government.

As for cash, the U.S. government makes it inconvenient to pay someone or be paid by someone in cash with "Know Your Customer" banking regulations. They try to make it so that the inconvenience and risk increases at least linearly with the amount of cash involved.

Copyright infringement and gambling do not have the potential to seriously reduce governmental revenue. Consequently, the most competent bureaucrats have not been assigned to controlling those things like they have or will be assigned to controlling Bitcoin.

The U.S. response to infringement has been conducted mostly by the legislature and the judical branch. It would be a lot more effective if the most competent parts of the executive branch, e.g., the Secret Service and the Treasury Department, made it a priority.

Disclaimer: I haven't studied Bitcoin so these comments should be taken as my rationale for not making the effort to study it.

[-]cata14y00

I was serious, but on reflection, I agree -- it's easy to audit checks, since they go through a bank. You may be right about how large a threat to taxation a strong Bitcoin would be.

[-]wedrifid14y-20

They try to make it so that the inconvenience and risk increases at least linearly with the amount of cash involved.

Linearly? You don't have to go up all that far on a linear scale before you reach 100% chance that you will be caught and receive the maximum punishment allowed by law!

[-]RHollerith14y00

I agree you cannot make risk linear with dollars. What I tried to say is that they try to make inconvenience linear with dollars, so that one shouldn't generalize from the fact that one can take a few 1000 out of the bank in cash and put it in again a few months later without anything happening.

Well, even that's not right, but I do not have time to be more articulate right now.

[-]timtyler14y00

Secondly, what makes it much easier to evade taxes by failing to report Bitcoin payments than evade taxes by failing to report cash or check payments? Taxes work because enough companies and individuals pay them voluntarily that the cheaters can be cross-checked into oblivion. I don't see why people would be more likely to cheat if they were transacting in Bitcoin instead of cash.

Cash is pretty anonymous, but also pretty useless for paying people over the internet. Cheques typically leave an audit-friendly paper trail.

[-]timtyler14y20

"Why Bitcoin will fail" - by Avery Pennarun - was pretty awful.

[-]gwern14y20

Calacanis makes some pretty strong predictions. I recorded one at http://predictionbook.com/predictions/2686

[-]David_Gerard14y20

Which governments? How many governments? It looks like a strong prediction but it's actually made of weasels.

[-]gwern14y20

Any sovereign government or subsection thereof. I don't think we need to worry about whether Sealand or Vatican City banning bitcoins counts. And how many? He says governments, as in, more than 1. This prediction is no less precise than the vast majority on preditionbook.com, most of which can be closed fairly uncontroversially without debating what the meaning of 'is' is.

[-]Liron14y10

In 2006 I read a paper about a cryptosystem for e-cash and it was way worse than BitCoin. When I read about BitCoin, I couldn't believe how perfect the scheme was. It turns out there's no "Arrow's theorem" for e-coins -- every desirable criterion can be satisfied at once.

The biggest doubt I had about BitCoin was that it would never gain social traction. But watching the USD/BitCoin exchange rate increase 10x in 5 months has made that doubt smaller in my mind.

And so I offer LW readers this applied-rationality suggestion: If you're looking to make a high-risk investment, BitCoin seems like an overdetermined choice. I judge it to have a very high expected return - something like 2x in 1 year - and I'm investing today.

[-]saturn14y20

The big problem I see with BitCoin is that everyone's entire transaction history is public. So if you ever use BitCoins to buy something that needs to be mailed to you, or trade them for money sent to your bank, your anonymity is basically gone—anyone who can coerce/subpoena/spy on the "real life" side of a single transaction can link your real identity to any transaction you've ever made or will make.

[-]jimrandomh14y10

No, the convention and the default is to use a new receiving address for each inbound transaction, so this exposes only a small portion of your transaction history, not the whole thing.

[-]saturn14y20

At least according to this, you must spend coins from the same address you received them on, so using different addresses doesn't buy you much. You still can't spend the BitCoins you've received and keep your anonymity. The page I linked recommends a procedure for money-laundering; I'm not sure how to evaluate how effective it is, but it's definitely inconvenient.

[-]David_Gerard14y00

Inconvenience strikes me as a major strike against a traceable currency; I suspect it would be a lot more tolerable for an untraceable one. But both inconvenience and traceability, particularly if governments are against it, would be pretty bad for it.

[-]jhuffman13y00

On the subject of 2.

People have speculated "could a government stop Bitcoin".

The answer is an unqualified "Yes", and the project will tell you the same thing. All it takes is having over 51% of the computing power of the world's mining operations.

A fork of Bitcoin called CoildCoin was killed by Luke-Jr. He explains his reasons for it a few pages into that thread, but basically he considered CoiledCoin to be fraudulent and/or a threat to Bitcoin. He claims he used only his own resources but its possible he used a large mining pool he operates.

Now the Bitcoin FAQ will tell you that there are a lot of limits to what you can do with 51% - little more than double-spending your own coins. That is enough though - once people know that the blockchain is corrupt they will walk away from it.

I've seen estimates that for only $80MM you could have an order of magnitutde more processeing power than the entire pool of miners that were operating at the peak last summer (many of who could come back online quickly). This puts the destruction of Bitcoin easily into the operating budgets of most Nation states, lots of companies and quite a few individuals.

[-]Gedusa14y00

Weirdly, though I think that bitcoins will succeed (and accordingly have some) I don't think Calacanis' article is well-founded. To focus just on the points I feel I can judge with some merit:

Bitcoin is unstoppable without end-user prosecution.

I don't think this is true. Shutting down of all legitimate currency exchanges would tend to increase the barrier to investment by legitimate investors and be likely to decrease interest in Bitcoins. Anecdote: I would get less interested in bitcoins if this happened. Also, a focused government campaign against it might succeed in branding it as evil in public eyes, again reducing interest. I do recognize that these factors wouldn't destroy bitcoin, but they would reduce the chances of it "changing the world".

Bitcoins will change the world unless governments ban them with harsh penalties.

Again, I'm not so sure of this. Can anyone give me any legitimate reasons to anticipate this? So far I've just people on the bitcoin forums saying that the dollar/euro will collapse and bitcoin will attain worldwide dominance.

Basically, I predict they'll find a decent niche, won't replace any currency system in any major country and won't increase in value to insane levels.

[-]David_Gerard14y00

Weirdly, though I think that bitcoins will succeed (and accordingly have some) I don't think Calacanis' article is well-founded.

It struck me also as a rather shallow and hand-wavy article, and I was wondering what people who liked Bitcoin would think of it. (I am quite used to the feeling of wishing a particular advocate for a view of mine wasn't on my side.) I am not a fan of Calacanis; I respect his skills, I don't like his work or the quality of his ideas.

[-]mutterc14y00

people on the bitcoin forums saying that the dollar/euro will collapse

Lots of people (fans of bitcoin or not) take that as a given. And if you do assume "fiat money is doomed, doomed!" then why wouldn't something like bitcoin become the world's reserve currency?

The euro has its problems, but if the dollar ever becomes worthless then the only useful currencies will be ammunition, canned food, and sex.

[-]knb14y00

And if you do assume "fiat money is doomed, doomed!" then why wouldn't something like bitcoin become the world's reserve currency?

Because governments would prefer other currencies. They would even prefer a gold or silver restandardization to Bitcoin, since bitcoins are harder to track than movements of physical metals. As far as spontaneous restandardization, (i.e. without government approval), metals have the advantage of an industrial price.

[-]Gedusa14y00

And if you do assume "fiat money is doomed, doomed!" then why wouldn't something like bitcoin become the world's reserve currency?

Okay, I'm willing to grant that if the dollar/fiat money in general is doomed then something along the lines of bitcoin would probably take over. But I don't assume this. I guess it is rational to put lots of money into bitcoin if you do take this premise though.

I agree that the dollar becoming effectively worthless would be pretty bad to put it mildly!

[-]David_Gerard14y00

I agree that the dollar becoming effectively worthless would be pretty bad to put it mildly!

Even if the USD goes down really badly in value, there's still three hundred million people, a large proportion of whom are workers, to give it some utility as currency.

[-]RHollerith14y00

One of the ways in which government will make it hard for holders of bitcoins that I have not yet seen mentioned here is that it will make it so that holders have no recourse to the courts when they are robbed or defrauded of their bitcoins.

[-]Nic_Smith14y00

That is certainly a way that that governments can make the use of Bitcoin less convenient, but I don't think it would be a show-stopper in and of itself, first due to the existence, already, of escrow services, and secondly because the practical difficulties of prosecution for all but very large sums doesn't prevent international transactions right now with conventional currency.

[-][anonymous]14y00

The biggest doubt I had about BitCoin was that it would never gain social traction. But watching it increase 10x in 5 months has made that doubt way smaller in my mind.

[-]jimrandomh14y-20

(Disclaimer: my ownership of bitcoins constitutes a financial conflict of interest with respect to everything I write on the topic.)

I think Jason Calacanis has it right, and Avery Pennarun has it wrong. Bitcoin is likely to succeed.

.1. The gold standard was a bad idea.

True, but has no bearing on whether Bitcoin will succeed or fail. Even if Bitcoin causes economic instability in the same way that the gold standard did, individual users of Bitcoin have no reason to care.

.2. Even if it was a good idea, governments will squash it.

Possible, but I don't think it's very likely, because its decentralization makes squashing it hard. It's not like they can raid some company's offices and disable the network. The dollar-to-coin exchanges could be targeted, but they're independent, expendable, and located in many different jurisdictions.

.3. The whole technological basis (cryptosystem) is flawed.

False, and Avery makes this claim from a position of admitted ignorance which makes it irresponsible. There are a lot of eyes on Bitcoin and the primitives it's constructed from; if it were flawed, the flaws would very likely have been discovered by now.

.4. It doesn't work offline.

True, but irrelevant. PayPal and bank wire transfers don't work offline either. And wireless internet access is quickly becoming a worldwide universal anyways.

[-]MinibearRex14y50

I don't know a whole lot about bitcoins, so maybe you can help me. You argued that decentralization makes the bitcoin system difficult to shut down. I'm assuming that before the US government would want to shut bitcoins down, bitcoins would have to significantly grow in prominence, and be accepted by a number of large businesses (Amazon, eBay, Barnes & Noble, Target, JC Penny's, etc) with websites. Because bitcoins would then be available for a wider variety of purchases, they would get a lot of new users. Assuming that the government then decided to shut it down, couldn't they just make it illegal for businesses to accept bitcoins? Bitcoins might still be available for person-to-person transactions, and maybe some small businesses, but if a business is present in the real world, and has to pay taxes, and so can be audited, that would put them pretty much at the mercy of the government.

Is what I'm talking about possible, or is there something in the bitcoin system that would prevent this?

[-]cata14y00

If there's an safe and relatively quick way to change your bitcoins into USD or Euros or any other currency, then it would be easy to spend them on Amazon anyway -- as an end-user, you might even semi-automate* the conversion when shopping at such sites.

*Presumably you would want to at least sign off on the current exchange rate first.

[-]RHollerith14y50

[G]overnments will squash it.

Possible, but I don't think it's very likely, because its decentralization makes squashing it hard. It's not like they can raid some company's offices and disable the network.

Tax evasion, money laundering and counterfeiting are likewise decentralized, but government has been able to drastically reduce the rates of those things.

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