ECB paper on Bitcoin and virtual currencies

[paraipan]

The fact that the founder of Bitcoin uses a pseudonym -- Satoshi Nakamoto -- and is surrounded by mystery does nothing to help promote transparency and credibility in the scheme.

Good point. I mean, it's not like the founders of the current monetary scheme, er... I mean "system" cloaked their activities in secrecy and used pseudonyms when they got together and planned it at Jekyll Island. What's that? Oh, they did? Yeah, ok, but that was years ago. Still, you gotta admit that the current operations and decision-making process of the Federal Reserve is a helluva lot more transparent than some open-source software that absolutely anyone can review or modify. Right?
 
Edit: And of course, that comparison is really unfair to Satoshi. The planners of the Federal Reserve tried to keep their involvement anonymous to deceive the public. My guess is that Satoshi simply wanted to preserve his privacy and/or avoid becoming the target of violence from the assholes whose racket is rightfully being challenged by Bitcoin.

^Thank you, had a good laugh and realized how misguided most people are.

[molecular]

The fact that the founder of Bitcoin uses a pseudonym -- Satoshi Nakamoto -- and is surrounded by mystery does nothing to help promote transparency and credibility in the scheme.

Good point. I mean, it's not like the founders of the current monetary scheme, er... I mean "system" cloaked their activities in secrecy and used pseudonyms when they got together and planned it at Jekyll Island. What's that? Oh, they did? Yeah, ok, but that was years ago. Still, you gotta admit that the current operations and decision-making process of the Federal Reserve is a helluva lot more transparent than some open-source software that absolutely anyone can review or modify. Right?
 
Edit: And of course, that comparison is really unfair to Satoshi. The planners of the Federal Reserve tried to keep their involvement anonymous to deceive the public. My guess is that Satoshi simply wanted to preserve his privacy and/or avoid becoming the target of violence from the assholes whose racket is rightfully being challenged by Bitcoin.

well spoken, sir.

you really got me, I was _this_ close to quoting "The Creature from Jekyll Island" once again before reading on .

On the matter: Bitcoin doesn't really need credibility, because it's "advertising" doesn't tell you anything that can't be fact-checked. Now of course there's the problem that average Joe can't read the sourcecode and/or as I've come to believe: understand the basics of the system.

I'm not sure the ECB-authors have dug in deep enough to have the bitcoin-aha-effect.

That's why it's possible that people actually think we might be telling them lies: our facts are complicated. And, well, to be honest: "It's very very very astronomically unlikely that someone accidentally finds the same key" is a shitty fact to tell someone in a conversation that tries to assure him his money is safe, no matter how many "very"s you put there! Even if you tell them something like: "It's like rolling 100 dice and they all come up '6'", they'll still think it could happen at some point because, well: they've seen 5 dice come up '6' and that's only 20 times more and there's a lot of time in the future and people generating addresses.

The analysis we're talking about here can help a lot because it's understandable and doesn't feature any of the technical details. It's really a good introduction to bitcoin. I especially like that libertarian austrian economics in-a-nutshell "grey box".

[misterbigg]

They also forgot another positive side... users use Bitcoins because they can't be debased through inflation

Well...actually no. People "hoard/save/speculate" Bitcoins because they can't be debased. I believe that the ECB paper was discussing Bitcoin purely as a payment system. For which, inflation doesn't matter since in theory the Bitcoins are held for a brief enough duration that fluctuations in purchasing power are effectively nil.

[Boussac]

Boussac and hazak

I think your effort to argue that "legal tender" fiat is also "virtual currency" is confusing the issue.

If bitcoin and fiat are both virtual currencies then the only distinction is: one is government backed 'legal tender' and the other is not.

I am afraid I have to stand by what I said: the distinction is NOT along the "virtual" line as bankers would like to make people believe but along the centralized vs decentralized divide.
Bitcoin is a decentralized P2P currency while the Euro belongs to the same "centralized" category as Linden Dollars, Frequent Flyer Miles or Facebook credits.
The word "virtual" is meant to hide the fact that central currencies are backed just by the people using them, like any other currency.

[Boussac]

That's why it's possible that people actually think we might be telling them lies: our facts are complicated. And, well, to be honest: "It's very very very astronomically unlikely that someone accidentally finds the same key" is a shitty fact to tell someone in a conversation that tries to assure him his money is safe, no matter how many "very"s you put there! Even if you tell them something like: "It's like rolling 100 dice and they all come up '6'", they'll still think it could happen at some point because, well: they've seen 5 dice come up '6' and that's only 20 times more and there's a lot of time in the future and people generating addresses.

You raise a good point.

The way I put it generally is "cyberthieves are billions of times more likely to break your bank account information and passwords than to break your bitcoin private keys."
It works.

[BCB]

Boussac and hazak

I think your effort to argue that "legal tender" fiat is also "virtual currency" is confusing the issue.

If bitcoin and fiat are both virtual currencies then the only distinction is: one is government backed 'legal tender' and the other is not.

I am afraid I have to stand by what I said: the distinction is NOT along the "virtual" line as bankers would like to make people believe but along the centralized vs decentralized divide.
Bitcoin is a decentralized P2P currency while the Euro belongs to the same "centralized" category as Linden Dollars, Frequent Flyer Miles or Facebook credits.
The word "virtual" is meant to hide the fact that central currencies are backed just by the people using them, like any other currency.

So then the operative word for bitcoin must be "decentralized" currency.

[paraipan]

They also forgot another positive side... users use Bitcoins because they can't be debased through inflation

Well...actually no. People "hoard/save/speculate" Bitcoins because they can't be debased. I believe that the ECB paper was discussing Bitcoin purely as a payment system. For which, inflation doesn't matter since in theory the Bitcoins are held for a brief enough duration that fluctuations in purchasing power are effectively nil.

I think they didn't forget about that, you have it on page 23...

Economic foundations of Bitcoin

The theoretical roots of Bitcoin can be found in the Austrian school of economics and its
criticism of the current fiat money system and interventions undertaken by governments and
other agencies, which, in their view, result in exacerbated business cycles and massive inflation.

[nobbynobbynoob]

If they were SMART they would have offered BITCOIN as a payment option!

Here you go:

http://downloads.payloadz.com/217507/fsn2012-1031-1-matonis.mp3?AWSAccessKeyId=012NFZM3D44FSG20CP82&Expires=1353426926&Signature=6%2BbqHxlKBDW9T9OReXOi4SnDLzc%3D

Thanks!

[misterbigg]

Boussac and hazak
I think your effort to argue that "legal tender" fiat is also "virtual currency" is confusing the issue.
If bitcoin and fiat are both virtual currencies then the only distinction is: one is government backed 'legal tender' and the other is not.

"Legal tender" laws are nothing more than regulation. As regulation always protects the incumbents, it's easy to see how legal tender laws, despite their claimed purpose, have the actual effect of eliminating competition.

[BCB]

Boussac and hazak
I think your effort to argue that "legal tender" fiat is also "virtual currency" is confusing the issue.
If bitcoin and fiat are both virtual currencies then the only distinction is: one is government backed 'legal tender' and the other is not.

"Legal tender" laws are nothing more than regulation. As regulation always protects the incumbents, it's easy to see how legal tender laws, despite their claimed purpose, have the actual effect of eliminating competition.

again  PLEASE design your terms. 

Is legal tender a "law" enacted by congress or parliament or is it a "regulation" defined by a Federal/National Government Agency or is it a "ruling" or "interpretation" defined by a high court.

[Wekkel]

That's why it's possible that people actually think we might be telling them lies: our facts are complicated. And, well, to be honest: "It's very very very astronomically unlikely that someone accidentally finds the same key" is a shitty fact to tell someone in a conversation [..]

Actually, somebody on this board explained it as a chance that is even billions less than that (i) you life for 80 years, (ii) from the moment of your birth, lightning strikes your head 200 billion times per second (iii) for the rest of your entire life. He got the numbers behind it and it makes completely clear how small that chance is.

I cannot find that thread just now

[molecular]

That's why it's possible that people actually think we might be telling them lies: our facts are complicated. And, well, to be honest: "It's very very very astronomically unlikely that someone accidentally finds the same key" is a shitty fact to tell someone in a conversation [..]

Actually, somebody on this board explained it as a chance that is even billions less than that (i) you life for 80 years, (ii) from the moment of your birth, lightning strikes your head 200 billion times per second (iii) for the rest of your entire life. He got the numbers behind it and it makes completely clear how small that chance is.

I cannot find that thread just now

I found it...

Comparatively speaking, your odds of being struck by lightning in a given calendar year are about 1 in 280,000. The odds of winning my local lottery are about 1 in 176,000,000. So finding a collision on your first try is roughly equivalent to being hit by lightning 16,540,000,000,000,000,000,000,000 times per second for an entire year or winning the lottery 830,000,000,000,000,000,000,000,000,000 times.

...but I think it's wrong. Off by many orders of magnitude in fact. Hopping over to that thread.

[Binford 6100]

Bitcoin is a decentralized P2P currency while the Euro belongs to the same "centralized" category as Linden Dollars, Frequent Flyer Miles or Facebook credits.

this. decentralized vs world. but still a good introduction paper

The word "virtual" is meant to hide the fact that central currencies are backed just by the people using them, like any other currency.

and taxes. they are not collected in Lindens

So then the operative word for bitcoin must be "decentralized" currency.

translates in the ECB paper to virtual, type 3 ; )

[evoorhees]

That's why it's possible that people actually think we might be telling them lies: our facts are complicated. And, well, to be honest: "It's very very very astronomically unlikely that someone accidentally finds the same key" is a shitty fact to tell someone in a conversation [..]

Actually, somebody on this board explained it as a chance that is even billions less than that (i) you life for 80 years, (ii) from the moment of your birth, lightning strikes your head 200 billion times per second (iii) for the rest of your entire life. He got the numbers behind it and it makes completely clear how small that chance is.

I cannot find that thread just now

I found it...

Comparatively speaking, your odds of being struck by lightning in a given calendar year are about 1 in 280,000. The odds of winning my local lottery are about 1 in 176,000,000. So finding a collision on your first try is roughly equivalent to being hit by lightning 16,540,000,000,000,000,000,000,000 times per second for an entire year or winning the lottery 830,000,000,000,000,000,000,000,000,000 times.

...but I think it's wrong. Off by many orders of magnitude in fact. Hopping over to that thread.

When odds are that unlikely, just say it's impossible.  Seriously.

[molecular]

That's why it's possible that people actually think we might be telling them lies: our facts are complicated. And, well, to be honest: "It's very very very astronomically unlikely that someone accidentally finds the same key" is a shitty fact to tell someone in a conversation [..]

Actually, somebody on this board explained it as a chance that is even billions less than that (i) you life for 80 years, (ii) from the moment of your birth, lightning strikes your head 200 billion times per second (iii) for the rest of your entire life. He got the numbers behind it and it makes completely clear how small that chance is.

I cannot find that thread just now

I found it...

Comparatively speaking, your odds of being struck by lightning in a given calendar year are about 1 in 280,000. The odds of winning my local lottery are about 1 in 176,000,000. So finding a collision on your first try is roughly equivalent to being hit by lightning 16,540,000,000,000,000,000,000,000 times per second for an entire year or winning the lottery 830,000,000,000,000,000,000,000,000,000 times.

...but I think it's wrong. Off by many orders of magnitude in fact. Hopping over to that thread.

When odds are that unlikely, just say it's impossible.  Seriously.

That's not a good idea if the person learning about bitcoin just discovered by himself the possibility of an address collision.

I'd like to be able to say something like "it's about as likely as getting struck by lightning every time you take a piss for the rest of your life".

[franky1]

i think half of the posters did not read the full article and are trying to grasp how to legally classify bitcoins compared to digital version of fiat so here goes...


if the value in digital form represents the same numeric value (minus commissions/fee's) as the FIAT payment made to obtain it, and also the digital balance uses the FIAT symbols £ $ Euro etc then this is called 'E-Money' which is regulated by financial institutions. EG paypal, moneygram, online bank account balance
if the digital numeric balance has no obvious comparison to the FIAT amount paid and does not use FIAT symbols this is called virtual currency.  which is not regulated by financial institutions. EG 23Bunny points for $1 or 1BTC  for $11

e-Money regulated. Virtual currency not regulated. they are separate classifications and not the same thing.

the virtual currencies are then divided into sub categories depending on their use and impact to real world markets
type 1 (least impact) where you can purchase points but not redeem them back for FIAT. EG facebook credits, microsoft points.
type 2 where virtual currencies can be traded back and forth for FIAT
type 3 like type 2 but also used as means of trading real life products and wages.

if you skip down to chapter 4 of the PDF :THE RELEVANCE OF VIRTUAL CURRENCY SCHEMES FOR CENTRAL BANKS it has a few things to note about it.

regulations do not affect the bitcoin community by controlling what you do with coins to purchase products. so if you buy gold. you are 100% free of income taxes (but the sellers value stil incorporates sales tax if they are a legitimate business that requires sales tax in that country).

BUT if you want FIAT for your BTC then regulations do come into play once a fiat request happens or when fiat exchanges hands. which is where MTGOX, Bitinstant have to be regulated. but the guy selling alpaka socks for BTC does not have to be regulated.

they cannot find enough evidence that it is a ponzi scheme due to the fact that there is not one single entity in control of it to in human terms. close the doors and run off with all the FIAT equivelent of all the coins.

but they can class it as high risk due to the monopoly where there is a lack of multiple main payment gateways in and out. basically bitinstant mtgox holding the largest value exchange with a few dozon very small in comparison exchanges.

that due to this if a majority stake was to cash out it would easily destabilise the market.

EG the 5 people with other 300k BTC could take a huge portion of the FIAT market capital. as noted by the summer 2011 events that made BTC shrink to only a few cents

[Binford 6100]

I'd like to be able to say something like "it's about as likely as getting struck by lightning every time you take a piss for the rest of your life".

And even if you'd be hit by a lightning bolt every time you pee for the rest of your life, the collision would not happen before the last strike and you'd be dead by then ; ) so don't worry about that

edit: !typo

[misterbigg]

Is legal tender a "law" enacted by congress or parliament or is it a "regulation" defined by a Federal/National Government Agency or is it a "ruling" or "interpretation" defined by a high court.

There shouldn't be any ambiguity. "Legal tender" means a lawful medium of payment. "Legal tender laws" (or "Legal tender" laws) are statutes that define what is legal tender.

A "regulation" is a legal provision that constrains a right (legal provisions which duplicate natural rights are merely redundant and not worthy of discussion). "Legal tender" laws constrain an individuals right to enter into private contracts with other consenting parties using the currency of their choice. Furthermore they give governments license to shirk the one useful function that they can legitimately be said to have, enforcing private contracts. For example, not recognizing gold clauses in contracts.

[marcus_of_augustus]

And you just know that the guy(gal(s?)) at the ECB who beavered away doing research for this report then quickly and quietly went about getting themselves a USBful of bitcoins anonymously ...  

(just for research purposes of course!).

It's the powerful ideas that are the most corrosive to the old orders ... even the established actors just give up defending the status quo and move ahead eventually.

Notice that they never discussed the merits of centralised versus decentralised monetary systems based on a systems theoretic analysis ... cause that's where they lose.

[beckspace]

I'd like to be able to say something like "it's about as likely as getting struck by lightning every time you take a piss for the rest of your life".

And even if you'd be hit by a lightning bolt every time you pee for the rest of your life, the collision would not happen before the last strike and you'd be dead by then ; ) so don't worry about that

edit: !typo

Only if you pee just 9 times in your life.

Better say something like: "it's nearly the same as winning the lottery 6 times! 6 times!!"