Posted on 11/19/2013 3:10:23 AM PST by pluvmantelo
The Senate Committee on Homeland Security and Governmental Affairs, chaired by Sen. Tom Carper (D-Del.), is holding the first congressional hearing on the future of Bitcoin. The first panel features senior figures from the Obama administration. And their comments about Bitcoin have been remarkably positive.
(Excerpt) Read more at washingtonpost.com ...
“So how are they created? Is there anything of lasting, stable value assuring they have a value?”
The creation process for BitCoins involves computers running algorithms. I’m sure you could find volumes about the process with Google, but it will all boil down to that.
There is absolutely nothing of lasting, stable value about BitCoins. If some Russian hacker figures out how to crack their system and counterfeit them their value could go to zero in minutes.
What is it that you think gives the US dollar intrinsic value? It has lost 95% of its purchasing power since the early 1900s. The dollar used to be backed by gold, but now it is backed essentially by the international community being willing to accept it in trade and as a “reserve currency”.
It takes a huge amount of computer processing to create a new bitcoin. That is, it costs money for high-end computers and the electricity to run them to produce new bitcoins (think of all the effort required to mine new gold).
Compare that with the Federal Reserve. The FR just moves the decimal point to the right and, voila, new money is created. The hard part for the FR is getting the “new money” into the Treasury.
I don't particularly. But I think that unless government collapses completely and we're back to the barter system, it will be used for exchange. People are programmed to accept money. I really can't think of anything that's practical and nearly 100% believable with verifiable value except for old silver dollars.
Jon Paulos, a very readable mathematician, wrote about a scheme to create money. That would that when expressing money in decimal form, the value has to be cut off at some point, assume it's at thousandths. All of those cut-off miniscule amounts add up. Programmed by someone very devious and tech savy, could sweep those cut off decimals and accumulate it into an account. It would add up very quickly. I think a scheme along these lines is what started the mutual fund crisis at Putnam.
Could the bitcoin algorithm be something like that?
"The numbers man" John Paulos is very good, as was Martin Gardner (and Yakov Perelman before them).
Bitcoin (based on "nothing" you can hold in your hand but can hold and transfer in cyberspace) is the antithesis of the "gold standard" (based on "something" you can hold in your hand but can't transfer in cyberspace) so most "gold bugs" will hate it just on that basis. Which is kind of interesting because, as a finite (and possibly diminishing, due to losses) resource (somewhat similar to gold, including the "mining" reference) the price inflation of the currency "value" is inherent, built in.
But how and, more importantly, when would you like to use "currency" that, within a span of a few days or even hours can double in "value" (relative to most accepted convertible currencies) as well as be cut in half of its "value," i.e., you become a currency speculator and arbitrageur, whether you want it or not. Would you hoard it or spend it? If you are a shop accepting bitcoins, how often would you keep repricing the items based on extremely volatile currency?
Remember the Linden Labs and Second Life's LindenDollars and collapse of the Ginko Financial Bank?
Not to mention that due to the inherent characteristics of cyberspace and distribution of bitcoins, the entire supply of bitcoin is far more susceptible to attacks and/or theft or control change than more than a fraction of the entire distributed world supply of gold in existence.
The Auric Goldfingers and Hunt brothers of cyberspace are already licking their chops over cornering the bitcoin market : Bitcoin Is Broken :: Hacking, Distributed. Tulips, at least, were impervious to this kind of subterfuge, though the barriers to entry into the "tulips market" were kind of low and tulip seeds were sold as an "investment" rather than "money" though anybody could use them as currency.
Heck, how long do you think it would take the NSA or for that matter, any entity with massive parallel/distributed computing power and crypto algo expertise (Google, IBM, etc.) to take over Bitcoin?
There is something real that I accumulate until it's meaningful. If one uses Amazon's credit card they accumulate Amazon credits which can be used for purchases there. It seems much more real than bitcoins do. I know how they accumulate for me and how they can be used. They have a real dollar value. I can spend them for anything I want on Amazon, but they're not something I can hold in my hand or use as money outside of Amazon-land.
I have another money question. (is there a good website for Q&A about this stuff?) It's about gold. People think they own gold if they have a gold mutual fund or a certificate that someone is holding "x" amount of gold for them in a safe vault somewhere. It seems a little naive to believe that. If I owned gold, I'd want it to be in my immediate control and in a form so it can readily be identified as trustworthy gold. Am I being too cynical?
That's why it seems to me that old silver dollars might be the most identifiable thing there is to retain universally accepted value.
Thanks for your interesting post.
My sense of the currency is that a substantial part of its ‘value’ is that it can be used anonymously. Absent that, its risks seem to far outweigh its benefits. To my limited understanding, anyway.
BTW, as I’m not savvy enough to independently confirm that alleged anonymity, I don’t use the currency. Er...not that I have any reason to make anonymous purchases.
1) anonymity (the same "problem" as cash but extended to long-distance purchases)
2) they don't (currently) tax it The word "embrace" is very apt here.
I was just explaining to a friend who was surprised that bitcoins got a warm reception from Democrat-controlled Senate, that it's an old strategy of Embrace, extend and extinguish [if necessary) utilized by Microsoft for many years.
By "embracing" bitcoins they hope to tax it and regulate it, thus rendering anonymity aspect and associated "threat" moot. It's already in the process of being done in Germany and considered by several Asian states.
Once it's done, it will be mostly dead, because the anonymity is really the only thing that gives it any value. Paypal, Square and expansion of conventional credit card companies into e-transfer, with all the convenience and inherent protections and without inherent speculative aspect of bitcoin, will have much more appeal for 99.99% of the people.
Actually, not much different than the current strategy of "legalizing" marijuana, "medical" or "recreational" - essentially taxing and "regulating" it and "protecting" the "market" from illegal marijuana. It also allows for the expansion and increased funding of / spending on the state drug enforcement agencies.
Absolutely. See my post #27 (I posted it without seeing your response or I'd include you in CC as well).
To my limited understanding, anyway.
You seem to understand it much better than most people bantering about it.
[Major] Swiss banks prided themselves on anonymity. Now, after the IRS and SEC crackdowns, several Swiss bankers and many US citizens are behind bars and/or paid heavy fines and penalties for tax evasion. Singapore is considering "financial transparency" cooperation with the US banking system and tax authorities.
The recent US law, called FATCA / Foreign Account Tax Compliance Act (ironically, rhyming with the word "fatcat" that Obama, Dems and Occupy-ers used notoriously against "Wall Street" and "banksters") significantly increased compliance costs and disclosures of all undeclared income or assets.
That, plus some of the highest taxes among the industrial countries (including double or triple taxation and extreme burden of bureaucratic regulatory compliance), is but one major reason for a record number of US citizens giving up their citizenship in recent years (Tina Turner is one most recent high-profile example).
And it includes not just very wealthy, but many [former] Americans living and/or working overseas - many banks there close and/or refuse to open new accounts for US citizens.
As I recall, the heavy handed behavior of our taxmen earned us no small amount of enmity from the Swiss.
Actually, these sub-bits/sub-pennies really can be just ignored / rounded-off and "reconciled" in bank's favor at the end of the day (fiscal period) but, if I understand your question correctly (or simply more broadly), you are asking if it's possible to exploit rounding-off mechanism to accumulate money in ANY electronic transaction, including but not limited to bitcoins?
In other words, whether the banking scheme from Office Space would work in real life, in electronic exchanges.
The answer is really not related specifically to bitcoins but, in general, it's usually not worth the time "invested" in such endeavour for anybody who is smart enough to devise and implement such a scheme. Transactions volume is only one of the factors.
This is just the most recent experiment you can draw your own conclusion from:
Money-making machine cashes in on currency trades - BBC, by Mark Ward, 2013 November 18
If left to run at its top speed, the device could generate almost 70 euros (£58) a day by carrying out thousands of small transactions. The device was built to test the security of online banking systems. However, said experts, banks' anti-fraud systems would probably prevent the machine cashing in. ..... < snip > ..... These transactions were rounded up in a customer's favour so they ended up with cash worth slightly more than they started with. "The trick is that users can choose the amounts that they want to exchange such that the rounding will be always done in their favour," Dr Furtuna told the BBC. ..... < snip > ..... Dr Furtuna, who works for KPMG Romania as a penetration tester, set out to see if banks' online currency trading systems were vulnerable to large scale exploitation of this rounding error. ..... < snip > ..... Dr Furtuna told the BBC. At most, he said, it could carry out 14,400 transactions per day. This means, at most, it could generate about 68 euros per day if left to run unchallenged. ..... < snip > ..... Tod Beardsley, a security engineer at Rapid7, said such "salami slicing" attacks were well known, having been depicted in films such as Superman III, Hackers and Office Space. "Salami slicing attacks are usually illegal, since they usually add up to some kind of bank or tax fraud, or run afoul of anti-money laundering laws," he added. Many banks avoided falling victim to such attacks by imposing a minimum transaction size that removed the fractional error, said Mr Beardsley. Penetration tester Charlie Svensson, from security firm Sentor, said banks' anti-fraud mechanisms would probably spot and stop anyone trying to carry out thousands of tiny trades all day, every day. ..... < snip > A money-making machine that exploits rounding errors in currency exchanges in favour of bank customers has been built by a security researcher.
There is something real that I accumulate until it's meaningful. If one uses Amazon's credit card they accumulate Amazon credits which can be used for purchases there.
Similar to the "points" and/or "rewards" that you get from most credit cards. They exist in cyberspace (just like your "regular" bank account), but yes, you could convert them into "real" goods or services from shops at Amazon-land - just as you could with bitcoins for those who sell and buy in Bitcoin-land. There are even now bitcoin ATMs (a few were installed in Canada recently).
I have another money question. (is there a good website for Q&A about this stuff?) It's about gold. People think they own gold if they have a gold mutual fund or a certificate that someone is holding "x" amount of gold for them in a safe vault somewhere. It seems a little naive to believe that. If I owned gold, I'd want it to be in my immediate control and in a form so it can readily be identified as trustworthy gold. Am I being too cynical?
Most respected large gold ETFs are backed by physical bullion bars stored in the banks' vaults. For example, SPDR GLD, the worlds's largest gold ETF, stores the gold bars in the London vault of HSBC Bank. Gold of ETFS Physical Gold ETC is stored in the London's vault of J.P. Morgan. Sprott advertised that its PHYS Sprott Physical Gold Trust can be actually audited.
If I owned gold, I'd want it to be in my immediate control and in a form so it can readily be identified as trustworthy gold. Am I being too cynical?
Being cynical is fine, especially when considering range of available investments and the amount of accompanying misinformation, but also probably just a little bit confused by all the noise and hoopla about gold as "money" (rather than investment / trading vehicle or commodity) and more specifically "physical gold" vs "paper gold".
Just to assuage your discomfort with "paper gold" / gold ETFs, hedge funds and billionaires such as John Paulson, George Soros, Warren Buffett, just to name a few, have invested and divested their holdings in GLD, not in in the "physical" gold. I think that speaks volumes of their level of comfort investing in and holding for a long period of time the "paper gold."
ETFs have significant advantages over physical gold, such as much higher liquidity (the price of gold really took off since late 2004 when SPDR GLD ETF allowed hoi polloi to easily invest in gold, not in the form of futures or coins or bullion or miners' stocks - the demand skyrocketed, and the price correspondingly went up), no sales/VAT taxes, no safekeeping and other fees, no other expenses, such as insurance etc. etc. Similarly, SLV (iShares Silver Trust) started trading on NYSE in 2006. So, in real life, you really have much more "immediate control" over your investment via ETF than you would have with any "physical" gold or silver instrument - bullion, coins, jewelry etc.
So in a sense, these are demand-driven commodity-based trading vehicles, very liquid (at some point GLD became the most "valued" ETF in the world, beating SPY) but nobody confuses them with "money" unlike bitcoins, which are far less liquid.
All of the above is simply information, not a recommendation of or against certain investments.
You recall correctly (and not just Swiss) :~)
Thanks for all of that information. You’ve made it really clear.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.