Bitcoin Forum

Someone on the Mises Institute forum had this to say about BitCoin:

"One day, while I was learning about cipherspace, I discovered BitCoin.  BitCoin is a completely decentralized, anonymous online monetary system that relies on a distributed database to facilitate transactions.  The creator put a great deal of effort into ensuring that the system is secure and reliable.  Unfortunately, there are no real assets backing he currency of BitCoin (and no coercive government backing it either).  Thus ends BitCoin."

(url to the post is here: http://mises.org/Community/forums/t/9853.aspx)

Myself, I believe the inherent value of gold is the fact that no one can manufacture it out of thin air (yes, they can mine it, but there are significant costs to that), it can be traded anonymously, relatively small amounts of it have a high value (which is due to its scarcity on earth), and it has world wide marketability.  It does have some value as a conductor and jewelry, but I believe that is insignificant relative to its value as a money.  I believe BTC has these same monetary attributes and hence I believe the view of this poster (that a money needs some tangible asset backing) is incorrect.  I am curious what people here think.

I made a 500 dollars bet on the success of the bitcoin economy.

How is "success" defined for this wager?

If something doesn't have use value it can't bootstrap to having trade value.

Oh wait, nevermind :P

It's a success if kiba can one day sell the $500 worth of BTC that he bought for more than $500.00 :-)

10,000 people using it. Media coverage said or perhaps estimate.

So if the NYT's runs an op-ed about bitcoin and the author estimates more than 10K people using it at any given time period, you when?  How could you lose, is there a time limit?  Does the Mayberry Register qualify, or TheBlaze.com?  I could esimate that more than 10K people have used bitcoins for something since Jan 2009 right now.

This is one of the best descriptions I've ever read about the value of gold as a currency.  Thank you.

10,000 people by 2015.

Well, I just think exactly the same.

The value of BitCoins will be limited to:

1. The future infrastructure to deal with the massive number of potential transactions.
2. The security of personal computers.

If these two things can be overcome, BitCoins could theoretically replace the current currencies.  If not, BitCoin will be relegated to the fringe.

I agree with 1.  Indeed I'm not sure bitcoin could be used simultenaously by billions of users.

However, point 2. is not limited to bitcoin.  If security of personnal computers is compromised, then any electronic transaction is.  Not just bitcoins.

Really?

You don't think if bitcoin gets really successful and there are hundreds of millions of dollars poured into engineering efforts for it (and if it is wildly successful, big companies WILL invest huge amounts of money on it), that any scaling problems won't get solved?

I bet I could find people predicting a few years ago that Facebook would never be able to scale to billions of users (it was written in PHP for pete's sake!).

Another newbie with the sole insight into the great bitcoin flaw.  Seriously guys, this gets old.  Don't you guys ever think that we've already considered all this before you arrived?  Search the forum history before opening mouth/insert foot.  We get tired of explaining this stuff repeatedly.

Well, if you present it like this, I guess it could ;)

After all, we only have one implementation.  There is a lot of room for improvement.

Yep, I remember discussing it several times...
Move along, nothing to see here.

<quote>
Unfortunately, there are no real assets backing he currency of BitCoin (and no coercive government backing it either).  Thus ends BitCoin.
</quote>

Geez, this is some bad economics from the Mises forum of all places. I agree with you Steve, the above statement is incorrect. BitCoin is not valuable because it is backed by a real asset, it is valuable because it serves the role of money. Gold also is not valuable because it is a "real asset" it is valuable because it to serves in the role of money.

The title is a bit misleading...I should stress it's just a forum posting, not anything official from the Mises Institute.  One thing I've thought about is what if another cryto-money just that functioned just like BitCoin appeared.  What would that do to the value of BitCoin?  The value of BitCoin is directly related to the community of people that use and exchange BitCoin.  In a very real sense, when you own and hold BitCoin, you are investing in that community.  You are increasing the value of the btc in circulation and thus enabling others to use their btc holding to further build out the btc infrastructure (should they choose to use their btc in such endeavors).  It is in a sense like buying shares of a company, except in this case, it's a community rather than a company.  The more people build out the infrastructure around btc, and the broader btc it is adopted, the more valuable the btc itself becomes.  I know what I'm stating is probably obvious to most, but I like saying it. ;)

So, to the extent that another crypto-currency is able to gain broad adoption and builds out its infrastructure, it would compete with btc.  However, I think there is quite a bit of room for a number of crypto-currencies to grow.

Same thing would happen that happened to Social Networking. One dominant leader would emerge and once dominance is established the leader would need to really mess up to lose poll position.

This is imho the biggest threat facing BitCoin, not government interference.

Some at the Mises Institute are too atached to gold, but there are a lot of misesians in the bitcoin community.

Nobody can argue that Bitcoin is a success now, today. If most of the people will have the same trust in bitcoin one year from now, bitcoin will still be a success. My response to that article is: i back bitcoin up. and kiba, and creighto and everybody else.

Amen to that.  Establishing a new currency is a lot of work, but we're going out there and doing it.  That's what's going to make it succeed.

We'll actually get wrecked if it doesn't grow some. The number of coins is going to double over the next 2 years.

I think it will grow, but holding coins is a bet on growth, not just on our staying interested.

Then it's our job to produce looooooooooooooooooot of goods and services so that bitcoin stays valuable.

IMO: BTC > Gold

BTC: Scarce, and over time, deflationary. some will inevitably be lost due to idiocy on the part of bitcoin holders. No new bitcoins will be minted over 21 million.
Gold: Scarce, but effectively, over time, infinite. new deposits, asteroid mining, potential future scientific breakthroughs in atomic science, all these could make new gold. Even gold inflates, albeit at a very slow (if punctuated) rate.

This is already happening with bitcoin companies forming to make use of capital, this process will speed up a lot when we get a stockmarket to efficiently allocate resouces and capital.When that happens things will kick into overdrive.

That's quite obvious to me too.

I think the people who don't believe in this either aren't geek enough to understand bitcoins (so they lack trust), or they just worship gold without really understanding why this noble metal was such a good money for so long. If you understand what are the features that make gold useful as money, you'll easily that bitcoins upgrade each one of these features, by orders of magnitude in some cases.

It's not a currency yet, it's a commodity. In time, it will become currency.

Yes, BTC are limited to 21 million but that is a mortal construct. I mean how hard is the 21 million limit really?
In 5 years time when the globe is screaming out for more BTC, it is conceivable that a mob of evil people will round up the programmers of BTC. Then with guns to their heads, and their families heads they could imaginably sign-off on a change in the source code to 42 million BTC.

Gold scarcity is a natural thing and out of the hands of human weaknesses, for now.

That won't make everyone else accept the change. No one who already has BTC will want it to go down in value.

It makes no difference what people want, it will be coded into the system at that point. It's the same as the Fed. Res. printing money.

It's called forking.

Bitcoin is still unproven. This site itself still warns that it's experimental beta software. There are fears that a bug will be found flooding the market with fake bitcoins, or that a new, better online currency will be introduced, or that someone with enormous computer resources will attack the network. All these might make everyone's Bitcoins worthless. These reasons are why I, and a lot of people, don't put more than a small amount of net wealth into Bitcoin.

Gold, on the other hand, has 6,000 years of history of keeping its value.

As of now there is no mechanism to force people to upgrade to a newer, less desirable version of Bitcoin. the scenario you describe would require that people controlling over 50% of the network computing power adopt the newer, different software.

True. Nonetheless...

"Qui audet adipiscitur". ;)

As far as i understand, controlling >50% of the network would only allow some double-spending attacks.
However if you want to print money, there is technically no possibility of enforcing "government-controlled version of Bitcoin" on everybody.

For example, if you make 60% of the network accept new type of blocks, which will allow printing more money, then the remaining 40% of the network will completely reject these blocks, which effectively will make Bitcoin split into 2 networks: the "new" one which is government - controlled, and the "classic" one.

Of course, people will choose the "classic" network (nobody want's his money to be stolen by government), and the whole operation will fail. Unless of course govs make that illegal, and Bitcoin will go underground.

Just as gold is backed by the assets that people are willing to exchange for it, so too is Bitcoin.

That's what I meant by "lack of trust".
Faking digital signatures? Has this ever happened with the algorithms used by bitcoin?


That wouldn't change what I said. Bitcoin would keep being better as money than gold. This new, better online currency would only be even better than that.

Don't confuse "being good as money" with "being good as an investment". Bitcoins are definitely more risky as investment than gold right now.


All this rich criminal would be able to do is to fraud transactions, by double-spending. That's not an "attack to the network" but rather an attack to some individuals who are unlucky enough to deal with the criminal. And, I really doubt that the eventual benefits one could get out of such criminal activity would be even close to the great cost of gathering more processing power than the entire network. Somebody with that much resources would probably earn more by just generating, actually.


Worthless, I doubt it. At most, it would see a decrease in value if, for example, a better currency shows up or most governments worldwide declare a War on Bitcoins Exchangers. But that has nothing to do with bitcoin's qualities as money.


Again, you're confusing "being good as money" with "being a safe investment". I don't doubt gold is a safer investment right now than bitcoins.

In my experience, making something illegal exponentially increases it's value. Should the US gov make btc illegal, I will immediately transfer as much assets into it as possible. They just made it the de facto currency of the black market.

Being a good investment, or at least a stable one, is a requirement for something to be a good form of money. (At least when it's not legal tender).  Few people would voluntarily accept something as money when it has what they consider to be an unreasonable risk of losing its value.

Still, you won't pay for your groceries in Bitcoin then, so mainstream adoption can be severely slowed down.

Depends on what you define as Groceries: http://billstclair.com/DoingFreedom/000623/df.0600.fa.lipidleggin.html

But yes, that would slow down mainstream acceptance, But if you know anything about agorism, you know BTC is perfect for it.

Maybe, but don't compare currencies with drugs... the latter have a very "hard" demand, in the sense that, if it becomes more scarce, people will stop consuming other stuff in order to continue consuming drugs, that's what pushes their prices so high.

Currency, I'm not that sure... if it becomes dangerous to use bitcoins, people could simply switch back to government controlled currencies. That may cause a big devaluation. In the long run, the value would tend to stabilize and then slowly grow due to scarcity, but if you bought a lot just before the decrease, you're screwed.

If you're just "using it as money" you won't really keep it for long. You keep it if you also see it as a way to save/invest.
By money I was talking just about "means of exchange", not a way to store savings.

Requirements for "good money" are features like:

• Slow inflation
• Easy to transfer, protect, store
• Easy to verify as authentic

And so on. It's on this sense, of "good means of exchange", that I'm certain that bitcoins beats gold.

I do think that the "sound money of the future" will either be bitcoins, or something else on the same line (something digital, not physical). It doesn't make sense anymore to keep using something physical for the role of money, imo.

You do have a point though, it is difficult to separate the role of "means of exchange" from the role of "store of value". For this latter role, bitcoins are still riskier than gold.

This is false.  The demand for drugs is not as hard as energy.  The price of drugs is a ratio with respect to it's supply versus it's demand.  The legality of drugs effects the risks of production and importation, resulting in a lower supply, increasing the price.  The risk premium of drugs is so high, that it is not unreasonable for the street price to be half or less if all drugs were decriminilized.  This is why, even though tobacco is not yet illegal, that Illinois can only raise their sin taxes so high before there are cases of otherwise normal Americans getting caught "smuggling" a station wagon full of tobacco products from Kentucky.

Is this correct?

It seems to me that if you had >50% of network nodes running a modified version of the BTC client then they could, given a bit of time, verify forged bitcoins. Eventually (time is key) the forged chains of block transactions would become longer the legitimate ones and even honest clients would accept them. And I am just talking about >50% of nodes, not processing power

Am I wrong?

No one can ever create new bitcoins in an illegal way, even if they have 99.99% of the network. Similarly, no one can ever spend coins that they have never owned in the past.

Network nodes can't influence transaction verification unless they control a very large portion (>80%) of the network. They need to segment the network, surround peers, or block transaction/block propagation. It is a design goal of Bitcoin for network nodes to be as powerless as possible. Only computational power should matter.

Thanks for your response, and it seems like you are (and I hope you are) probably correct. But a quick scenario:

If I made a fake bitcoin client, with proof of work already done for thousands of blocks (performed by servers as I am writing my fake bitcoin software) and longer chains than the honest nodes.

If I distributed my fake bitcoin and reach 50% + 1 and some time, how would the honest nodes know to reject my blocks? If my proof of work is longer and the blocks I fake are recent?

And if I already had the proof of work, doesn't the need for computing power go away, since verification is fast and easy?

(Apologies if this has been answered before, and I am somewhat new to crypto.)

An honest node can check the transaction signatures. No matter how long your proof of work is, you can't fake other people's signatures. So all you can put into your fake blocks is honest transactions plus your own double-spends.

Of course, if you can trick other people into using your modified client, then that client can show those people that they have a balance of three pink unicorns. But it won't convince the rest of the network of that.

First off, the scenario of 50% of the network power being able to create a false blockchain with a greater proof-of-work is practically impossible, as the attacker would need vastly more than 50% in order to gain enough on the honest network in order to perform any kind of attack.  50% would just let an attacker maintain a chainsplit for as long as he could maintain 50% of the network, shortly after he dropped to 49.9%, his false chain would be obliterated by the rest of the network. 

Second, it's a strange thing to say "fake" bitcoins in this context.  If you had a modified client that could pre-calculate the proof-of-work (let's call it a magical client, since part of the design of the blockchain makes pre-calculations of blocks, if not actually impossible, astronomicly unlikely sans a shortcut error in sha-256, and if you found an error in sha-256 you would be famous) then your client would functionally represent itself as a much more powerful node than it really is, resulting in the honest processing of blocks being your least risky and most profitable activity, neutering similar efforts by unknown attackers.  Even honest generation takes 100 blocks before the owner can spend them, and a dishonest node is going to have a hard time maintaining a chainsplit for 100 blocks even if he precalculated some of them, and is otherwise limited to the same number of coins per block as if he came by them in the honest manner, because other nodes will immediately reject blocks that tried to create more than the proper reward, or any blocks that the transaction signatures didn't match.

Not really, gold has a use in the economy, i.e. electronics, science, manufacturing, etc.   But the parallels between the two are rather close in all other regards.