In that case, the most trusted IOU would still be the IOU issued by US government. Of course you can use airline miles and supermarket coupons to purchase certain goods, but those have limited reach and a higher risk of ruin (Companies can go insolvent anytime)

In fact, for many people the biggest doubt of bitcoin is:  Who is going to back its purchasing power?  Although it is indirectly backed by merchants who accept bitcoin, but merchants are not responsible for its exchange rate, its value could still easily drop 30% overnight if no one is backing it with fixed amount of tangible assets. Currently the value is backed by the cost, very similar to gold, some kind of psychological support

In contrary to modern monetary theory (and what those academic people believe), USD's value is not decided by supply and demand, but by the value of assets that backed USD when they were issued. FED could easily create 5X more money without affect USD's value, simply because each USD issued are backed by assets of corresponding value (Although this action is questionable "Real Bills Doctrine", it works well to sooth the confidence of merchants)

I still don't understand the relationship between banks and governments in a democratic country

It seems they are not belong to the same owner, but they have some kind of cooperation. Now after financial crisis, bank's reputation drops dramatically, governments set more laws to regulate banks and constantly putting fines on them. But on the other hand, government still borrow from banks to stimulate economy, so they have some kind of dependency

Anyway, if they are not belong to the same owner, there will be lots of political conflicts. Currently government are focusing on AML/KYC part to tighten the money flow control, but it is just a matter of time before they eventually hit the most critical part: the money creation

I can not imagine who will not cash out at least part of it, unless he bought too little or forgot the password of his old notebook 

If US buy goods from England, US always need to pay Pounds. US can print a lot of USD but still need to purchase the Pounds on Forex exchange before paying the merchant from England

In theory, this will devalue the USD and raise the value of Pounds on Forex market, but that depends on the scale. Forex market is the biggest market in the world and there are trillions of dollars changing hands every day, and most of them are speculations. If Soros and other hedge funds are shorting the British Pound, no matter how much cars US import from England, it will not stop the fall of Pound's value

I think Forex market is a highly manipulated market, since the Forex exchange rate volatility is usually very low, means there are large players (typically central banks) behind the scene to stabilize the exchange rate

First, during the previous 5 years, most of the new coins are distributed among bitcoiners, most of them are holding bitcoins for long term, thus minimal sell pressure on exchanges. Now most of the new coins are in the hands of mining companies, they have to continuously sell the coins to deal with the cost, unless they have a long term vision. The uncertainties in regulation does not make it easy to make a long term plan


Second, the previous rally happened during a time when there were minimal regulation on exchanges, so that huge amount of fiat money could easily enter MTGOX and Chinese exchanges and drove up the price

Now after major exchanges were all tightened rules and have much more strict AML/KYC measure, it is very difficult to move large amount of fiat money in and out of exchanges. Currently I can see whales are targeting bitfinex, but there are still concerns about its safety

The positive side is the price will become very stable and that makes it easy to use bitcoin to measure value

IMO, major mining pools and mining farms will not upgrade until there are too many transactions being queued for too long

And even so, they will first try to throw away those transactions that do not pay a fee, and then use a fee structure to decide the priority of transactions, or do dynamic transaction allocation. There are still lot's of tools to use

This follows the old rule of complex system: As long as it works, don't fix it

Maybe Gavin is right, he can see the future in advance, much earlier than anyone else. But as long as majority of miners don't see that, they will not welcome changes that might risk their investment

When will the physical delivery of bitcoin happen if I purchase this certificate?

At current price level, I'm even paying to mine, so it is definitely too low

Today, majority of the hash power comes from those mining infrastructure investments that have already ROIed. But the electricity and cooling cost will rise under summer

If someone want to produce the current generation chips, he will always incur a loss, since his finished hashing power will be competing against similar chips on the network, but those chips have already ROIed and running at a close-to-electricity-cost profit margin, and the life expectancy is at least 2 years

Unless the new chip is 4x more efficient than existing chips, the investment have a high risk of failure

The dilemma is:

If you limit the total supply, it becomes a "to be the early adopter" gold rush, the coin becomes very scarce and highly speculative

If you do not limit the total supply(keep each block coin generation at 50 btc forever, or have an annual increase of 3% like Friedman suggested), then it will have endless supply, its value will be very stable and boring, thus almost no one will care about it (The expected gain of using bitcoin over fiat currency will be so small that it does not even worth the effort)

So, to find its ground in already crowded monetary/payment system, bitcoin selected the deflative end of the spectrum, which is a huge success so far

This kind of asset is very different than traditional asset, governments and banks have almost no control of its location and flow, a Swiss bank in cyberspace

It will always be volatile because of reward halving every 4 years. If FED cut new money supply by half every 4 years, it will cause some shock for sure

When you create 1 dollar worth of money using 1 dollar worth of resource/labor, then there is no robbery involved, just fair trade. However, if you write some numbers on a paper and use it as 1 dollar, then that is not fair trade. But still, many people accept this paper and regard it as something with 1 dollar's value. So it involves some trust and time related tricks

In a communist country like North korean, if you don't use fiat money you will be executed. But in a western modern democracy country, the mass adoption of fiat money is purely voluntarily. Is it because everyone's income is received in the form of fiat money? Or people only trust the most powerful organizations like government?

C must find a way to prove that he does not aware of the illegal transaction, but that's very difficult

You can easily prove that you know something, but you can't easily prove that you don't know something

If bitcoin is hold as long term saving asset, it will raise such a question:

Current law says that when you have large amount of foreign currency gain due to exchange rate change, that is capital gain, should be taxed as capital income, similar to other type of capital gain

But that only applies when you cash out the bitcoin into domestic currency. If later you moved to abroad and invest/consume your bitcoins, I guess that country will not try to tax you, since for that country the foreign capital injection is always a benefit, if you try to tax them they will never arrive

Unlike other assets (stocks/bonds/real estates), which can only be traded on domestic exchanges and be taxed accordingly, if you want to tax bitcoin, you must tax it before the people leave the boarder, but that is not OK because at that time the coins have not been exchanged into any other currency thus does not generate any taxable event

So maybe it is not right to classify bitcoin as asset, an asset without boarder is in fact physically non-taxable

I have this question when I just went through an old report that swedish bailiff are trying to find people evading tax with hidden bitcoins  
http://sverigesradio.se/sida/artikel.aspx?programid=1646&artikel=5983956

In reality, from money laundering law enforcement point of view, C is usually the one to blame, because the dirty money ends up at C's address

So, either C return the bitcoin to the victim, or he enter the blacklist of police watch list, that's how it happens in reality. Law enforcement have no way to know any concrete information about A B D and E, in fact they can all be some lines of codes


A similar questionnaire:

Person A issued government bonds of 10 billion dollar and give them to person B
Person B bring those bonds to person C and Person C create 10 billion dollar and purchase those bonds from Person B
Person B then take those 10 billion dollar and give them to Person A
Person A then spend those 10 billion dollar and hand out salary to person D
Person D then pay 30% of those salary to person A, and person A use those money to pay bonds interest to person C
Person B is the stock holder of Person C

Who is the theif  

You can not change the fiat world, but you have some alternative currency that suits a special group of people's interest: Geeks and libertarian

knc is selling their coins

In current banking system, if a large sum of money is lost, it will always end up somewhere in another account, since each account have its owner identified well, banks only need to freeze the destination account and eventually reverse it, the loss will be undo (Criminals can not take out cash in a fast enough manner)

However with bitcoin it is not the case, once fiat money entered bitcoin exchange, and bitcoin withdrew, there is almost no way to trace it further. Besides that, fiat money can be used to purchase mining rigs thus not even need to go through an exchange

So it is almost impossible to enforce KYC rules in bitcoin world, and that is exactly bitcoin's benefit, it brings more privacy than current banking system where everyone are almost naked in the eyes of banks

If KYC is not possible, then many current financial regulations will become useless. How could government manage risk and fight criminal/terrorism when KYC is very difficult? How could a country to enforce capital control when bitcoin can be used freely for international transactions?

Anyway, the AML/KYC regulation is reported to bring more cost than the benefit, so maybe it is the time for government to give up regulating every one's financial privacy and focus on other area

Interest is not a big issue. Now when the interest rate can be negative, all the debt slave talk will be questioned. In a negative interest environment, you only need to return less money than you borrowed, and there will be more and more money left in the circulation, and debt will shrink

So, as long as banks control the money creation, they could adjust the game rules as wish: Positive interest, negative interest, more money, less money... anything can be done when you command the money creation

The real issue lies in money creation, e.g. if those money are created at a cost to its face value. If it much cheaper, then there are some kind of slavery. And another problem is people using fiat money as unit of value, it is people's trust of fiat money give the money creator right to rob them