Mises on BitCoin

[ShadowOfHarbringer]

... or most governments worldwide declare a War on Bitcoins Exchangers.

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.

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

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[myrkul]

... or most governments worldwide declare a War on Bitcoins Exchangers.

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.

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.

[caveden]

... or most governments worldwide declare a War on Bitcoins Exchangers.

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.

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.

[caveden]

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.

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.

[MoonShadow]

[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.

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.

[tedstein]

As far as i understand, controlling >50% of the network would only allow some double-spending attacks.

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?

[theymos]

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

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.

[tedstein]

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

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.)

[ribuck]

... how would the honest nodes know to reject my blocks? If my proof of work is longer and the blocks I fake are recent?

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.

[MoonShadow]

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.)

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.

[someotherguy]

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.

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

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.