What will the state do?

[SgtSpike]

Another interesting thing to think about is what would happen to consumer-level debts denominated in USD if the USD did indeed collapse?  If USD was worthless, then I could buy it up by the bucketloads and pay off my house quickly.  Or, would the banks attempt to convert the loans into something else (even though I don't think that would be contractually possible)?

Great question. In essence, as your post alludes, hyperinflation ($$$ collapse) is debt default by the back door.

Exactly.  And I'm looking forward to it, because I've got a house that is worth less than I owe on it, plus some nice-sized student loans.

[tvbcof]

I suspect Bitcoiners are sometimes a little to prone to believe that 'the people' will be on their/our side.  Particularly US Bitcoiners.

To people who:

 - rely on direct assistance from the government for necessities like food (a rapidly growing number)

 - rely on the government for employment (a pretty large number which, notably, include the paramilitaries)

 - rely on the framework which the government facilitates such as infrastructure, foreign policy pressures, etc (a huge number)

threats to the USD, and even similar replacement in the event of a failure, are pretty much a direct and immediate threat to their mode of existence.  This is actually a reality, so all the government really has to do is to make the reality apparent in order to sway probably a significant majority to support 'the official system'.

Since very few individuals have gold, and even fewer have BTC, I don't think that the 'powers that be' would have to much trouble provoking the plebs to adopt the position which they find desirable.  And although not a certainty, I doubt that the position will include private citizens autonomously controlling either physical gold/silver or Bitcoin secret keys.

[Severian]

threats to the USD, and even similar replacement in the event of a failure, are pretty much a direct and immediate threat to their mode of existence.  This is actually a reality, so all the government really has to do is to make the reality apparent in order to sway probably a significant majority to support 'the official system'.

My favorite analogy is buggy whip factories and the internal combustion engine. The Federal Reserve and its dependents that you mention are buggy whip factories. Bitcoin is the internal combustion engine, being met with incomprehension and later, resistance. But there are no more buggy whip factories.

[Adrian-x]

China owns tiny portion of US debt, and almost no US asset.

I'm not sure how $1.1T can be considered tiny.

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

You haven't experience hyper inflation yet.

[Adrian-x]

If you're smart enough to grasp how bitcoin works, you're also smart enough to know why the current economic system won't work anymore.

I think the majority of economists, would argue growth is good right up to the point where everything collapse and then still blame lack of growth.

[tvbcof]

threats to the USD, and even similar replacement in the event of a failure, are pretty much a direct and immediate threat to their mode of existence.  This is actually a reality, so all the government really has to do is to make the reality apparent in order to sway probably a significant majority to support 'the official system'.

My favorite analogy is buggy whip factories and the internal combustion engine. The Federal Reserve and its dependents that you mention are buggy whip factories. Bitcoin is the internal combustion engine, being met with incomprehension and later, resistance. But there are no more buggy whip factories.

The problem you face is that in the case of a currency system, things seem to always roll back to centralized control in spite of such solutions as PM's being known about and in widespread use for periods of time through history.  So either the analogy you've drawn is backward or not to the magnitude you image (buggy vs. automobile.)  (As an aside, without the ability to obtain and transport liquid fuels the thing an automobile owner may wish he had most might actually be a buggy and a whip to drive it...but that's a different story.)

I should qualify things a bit by stating my belief that there is little difference between Bitcoin and gold.  The latter former is simply a set of clever tricks which add utility...and fragility as well to be fair.

edit: slight fixes

[Severian]

I think the majority of economists, would argue growth is good right up to the point where everything collapse and then still blame lack of growth.

A majority of economists would also be out of a job if they uttered the blasphemy of the Austrian school.

[Severian]

I should qualify things a bit by stating my belief that there is little difference between Bitcoin and gold.  The latter is simply a set of clever tricks which add utility...and fragility as well to be fair.

My analogy suffers from drawbacks, yes.

The truly frightening thing about bitcoin to the status quo is that it's the first new store of value and currency in centuries. There are probably no analogies that will do it justice.

[tvbcof]

I should qualify things a bit by stating my belief that there is little difference between Bitcoin and gold.  The latter is simply a set of clever tricks which add utility...and fragility as well to be fair.

My analogy suffers from drawbacks, yes.

The truly frightening thing about bitcoin to the status quo is that it's the first new store of value and currency in centuries. There are probably no analogies that will do it justice.

I think you are over-estimating things somewhat by not simply choosing a basic classification and then analyzing how the solution really compares to other solutions which fall into the classification.  As a Bitcoin fan myself, and someone who really does believe that Bitcoin has the potential to rock things significantly, I've done the same.  But I find it valuable to step back and put on my jaded view glasses to try to better see where the pitfalls lie.  In this way they might be addressed proactively.

[Severian]

I think you are over-estimating things somewhat by not simply choosing a basic classification and then analyzing how the solution really compares to other solutions which fall into the classification. 

I've been looking for other models. Bitcoin appears to be a singularity, though I'd always be glad to be shown otherwise.

But I find it valuable to step back and put on my jaded view glasses to try to better see where the pitfalls lie.  In this way they might be addressed proactively.

Complete agreement. But the more I look at this, the more I see that the protocol's strengths make up for the weaknesses and in some cases, the weakness may actually be a strength.

I see bitcoin as the geeky kid in class that everyone makes fun of until he grows up and then his detractors go to him looking for job.

[Adrian-x]

I see bitcoin as the geeky kid in class that everyone makes fun of until he grows up and then his detractors go to him looking for job.

Yip he has to service school though without giving up, it also doesn't help that teacher doesn't like him.

[mobile4ever]

I see bitcoin as the geeky kid in class that everyone makes fun of until he grows up and then his detractors go to him looking for job.

You remember what Bill Gates said? "Be nice to nerds, chances are you will end up working for one.".


Awesome↓↓
http://www.ted.com/talks/regina_dugan_from_mach_20_glider_to_humming_bird_drone.html

[SpiralNihlo]

If states attack bitcoin they're likely to shutdown the exchanges first as that's the easiest and most obvious thing to do if you are a state.

[nobbynobbynoob]

If states attack bitcoin they're likely to shutdown the exchanges first as that's the easiest and most obvious thing to do if you are a state.

The irony is, they'll be showing all their totalitarian colours doing this. The exchanges are, as far as I know, compliant with all the numerous strict financial-services regulations. A totalitarian government (yes, the US are one example) might just cry "money laundering", though, as an excuse for shutting down the exchanges. If we manage to grow the bitcoin economy sufficiently large before that eventual point then it won't hurt us so much since it would be akin to bolting the stable after the horse bolted, or similar to forcibly shutting down gold dealers/liquidators after many people have already decided to trade amongst themselves with gold coins/nuggets.

[CryptoFreak33]

Bitcoin would be completely disconnected from the mainstream.

But what if the mainstream had already adopted it?

Propaganda. It's amazing how leadable most people are. If they start hearing stories about how Bitcoin is used by terrorists or that the government is raiding users who hold Bitcoins, or other propaganda, they'll likely abandon it out of pure fear if nothing else. Never underestimate the state's ability to scare or beat its citizens into submission.

[Roger_Murdock]

Never underestimate the state's ability to scare or beat its citizens into submission.

Fair enough, but you should also never underestimate the power of an idea whose time has come. Plus, the state's credibility isn't exactly riding high these days. The 2008 financial crisis made a lot of people start asking questions about our monetary system for the first time in their lives. (I'm one of those people.) And I believe that 2008 was only a small preview of coming attractions. When the REAL financial crisis hits, people will likely be even more open to alternatives like Bitcoin. The internet has also weakened the state's propaganda power immensely. Look at the progress that's been made in ending the war on drugs (especially marijuana). Anytime there's a drug war-related story with open comments, those comments run 10 to 1 in favor of reform. You can see the same thing in online articles about Bitcoin when someone tries to spread FUD. Finally, don't forget that the state simply CAN'T stop Bitcoin (or at least that's what I'm told by people much smarter than I am). At best they can temporarily weaken it or slow its growth. But if and when that happens, Bitcoin will simply adapt and come back that much stronger.

Holy crap, I'm not sure when it happened, but I think at some point, Bitcoin actually turned me into an optimist.

[Chong Ciao]

Never underestimate the state's ability to scare or beat its citizens into submission.

Fair enough, but you should also never underestimate the power of an idea whose time has come. Plus, the state's credibility isn't exactly riding high these days. The 2008 financial crisis made a lot of people start asking questions about our monetary system for the first time in their lives. (I'm one of those people.) And I believe that 2008 was only a small preview of coming attractions. When the REAL financial crisis hits, people will likely be even more open to alternatives like Bitcoin. The internet has also weakened the state's propaganda power immensely. Look at the progress that's been made in ending the war on drugs (especially marijuana). Anytime there's a drug war-related story with open comments, those comments run 10 to 1 in favor of reform. You can see the same thing in online articles about Bitcoin when someone tries to spread FUD. Finally, don't forget that the state simply CAN'T stop Bitcoin (or at least that's what I'm told by people much smarter than I am). At best they can temporarily weaken it or slow its growth. But if and when that happens, Bitcoin will simply adapt and come back that much stronger.

Holy crap, I'm not sure when it happened, but I think at some point, Bitcoin actually turned me into an optimist.

you got it !!

Hapy new world

[SuperHakka]

The state is already cracking down innit? In the UK, first they stopped the Intersango exchange from receiving GBP deposits into their UK bank account with Metro Bank. No explanation was given why Metro Bank decided to freeze Intersango's account. And now today, Barclays, another UK bank has suspended Mt Gox's GBP bank account with them as well. Mt Gox says that no reason was given behind this action. They coming after us boyz!

[tvbcof]

The state is already cracking down innit? In the UK, first they stopped the Intersango exchange from receiving GBP deposits into their UK bank account with Metro Bank. No explanation was given why Metro Bank decided to freeze Intersango's account. And now today, Barclays, another UK bank has suspended Mt Gox's GBP bank account with them as well. Mt Gox says that no reason was given behind this action. They coming after us boyz!

I'd been expecting it 'any day now' for about 16 months.  It drove me to take the BTC position I wanted to be holding with some haste which ended up costing me a bit.  In fairness though, when USD/BTC got down to the $2-ish mark I was not so concerned about being harassed from the finance perspective...rather, it just seemed like a good deal at that time and I took a bigger position than planned.  Anyway, at this point I see widespread harassment as one of the better things which could happen for Bitcoin and I'm sitting fat and happy.  So, the world is good!

Financial harassment is nothing new of course.  As best I can tell it was a major factor in Tradehill shutting down.

Lastly, although I am not real keen on the authorities harassing people generally, I'm not going to exactly shed a lot of tears if the likes of pirateat40, Bruce, 'Tom Williams', the Intersango clowns, and the BFL guys (if they turn out to be perps) getting thrown in the pokey for their transgressions.  All of them have put a black mark on Bitcoin and thus both set back my hopes for the solution and  also cost me money.  Just like when so many people gloat about finding 'free power' to run their miners, law enforcement whacking these types is kind of like finding 'free muscle'...though it's a gift horse I would peer into the mouth of...

[SuperHakka]

Well done dude for the confidence in your convictions. In my sig, Ghandi says they attack you then the next step is we win!