Bitcoin Failure is likely

[smellyBobby]

Now that I've caught your attention, I believe that there is one fundamental flaw with the bitcoin model, failure to be recognized by any authority.

If it is failed to be recognized, then the value cannot be guaranteed. Modern day currencies are recognized as payment by a authorities within the country of issuance, e.g the government recognizes them as payment for taxes,etc, and once upon a time the value was guaranteed by gold.

It has been brushed upon in another thread¹.

Essentially the problem is this, firstly Bitcoin shows

                 It is possible to have a currency without a central banking authority.
                 That implementation is not difficult.

So why are these issues? Whats stopping a different another crypto-currency with exactly the same attributes as bitcoin? And by extension I believe that there will be competing crypto-currencies forming a "crypto-currencies market". This takes away one essential property that makes bitcoin by itself appealing.

                 The amount of crypto-currency in circulation is no longer pre-determined, rather it is infinite.

How is this achieved? If an entity does not want to recognize the value of a particular crypto-currency then they will simply start their own. Hence crypto-currencies will be plentiful.

There needs to be an attribute of bitcoin that mimics the same function as these authorities. Until then as long as it is easy to create a crypto-currency, I believe that bitcoin will be nothing more than an academic study. Nonetheless, I think that maybe crypto-currency systems will be adopted within companies as the company can force recognition of currency within itself and possibly governments/countries will adopt bitcoin-like currency systems, this I believe can have some real social benefits.

The technical design of bitcoin is worthy of a Nobel-prize, as I'm sure that there will be many benefits to humanity in the long run. However this isn't really about the quality of the code, imo the quality of the code and review process is proven by the use of an opensource model. It's more about properties that currently are not in the code, whether such properties can be coded, and the fact this problem is not being discussed.

Anyways I hope I'm wrong, I really do.

Please negate


http://bitcointalk.org/index.php?topic=3543.0

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[casascius]

It probably depends on the perceived legitimacy.

If I were to fork my own currency, my biggest problem is that probably no one would care.  I couldn't spend it anywhere.

If I were the CEO of Google and did this, it might be a different story however.

[ffe]

How is this achieved? If an entity does not want to recognize the value of a particular crypto-currency then they will simply start their own. Hence crypto-currencies will be plentiful.

I don't think so. Bitcoin has the first adopter advantage. Any new service requires many early adopters that will help it launch. All the people that are predisposed to be early adopters of an electronic currency like bitcoin are invested in bitcoin and will actively discourage a different e-coin. Without a pool of active early adopters a new e-coin is doomed. This can only change if a majority of early bitcoin adopters recognize a major flaw in bitcoin that is solved by a different e-coin. At this point this is not likely.

[Anonymous]

I want a currency the state cant seize .

Having bitcoin backed by "authoritah" means they can remove your rights by cancelling your license.

Having bitcoin backed by physical items such as gold means they can seize them.

Bitcoin cant be backed by anything because that anything can be removed.

There should be competing currencies because then you can make profit by trading between them and each would be reliant on people's faith in the the entity redeeming those currencies. Google doesnt have to control the currency it just has to redeem it imo.

[smellyBobby]

Bitcoin has the first adopter advantage.

This is itself hardly relevant, ie facebook eats myspace, i'm sure there are many other historical examples where this does not matter. This would be relevant if all currency systems in the universe were had the same underlying structure as bitcoin.

Without a pool of active early adopters a new e-coin is doomed.

The bitcoin concept has value, commercially and socially, but currently the total value of the bitcoin economy is less than 6mil USD. Lets assume that this is a reasonable estimation of the cost it would take to nurture another crypto-currency. Then any major private entity would be able to replace bitcoin currently.

Further this new entity will also guarantee the recognition of their crypto-currency, by extension guaranteeing value. Sure current day authorities are corruptly undermining the value of citizens cash, but to some extent they guarantee the value. I think that for bitcoin to work that some linkage to an authority of sorts will need to manifest itself. Now the structure this may take could be anything; imagine away. I would bet a small fortune and say if bitcoin is still working in 200 years without any change from today, then it will definitely be guaranteed by some sort of authority.

I want a currency the state cant seize .

But what is to make the 'state' recognize it? What I'm saying is that there needs to be a unbreakable link between crypto-currency and the state.

Google doesnt have to control the currency it just has to redeem it imo.

Agree, maybe they will be the hypothetical entity I talk of?

[hugolp]

So why are these issues? Whats stopping a different another crypto-currency with exactly the same attributes as bitcoin? And by extension I believe that there will be competing crypto-currencies forming a "crypto-currencies market". This takes away one essential property that makes bitcoin by itself appealing.

                 The amount of crypto-currency in circulation is no longer pre-determined, rather it is infinite.

How is this achieved? If an entity does not want to recognize the value of a particular crypto-currency then they will simply start their own. Hence crypto-currencies will be plentiful.

Imagine the situation in one or two years, where more and more business are starting to accept bitcoins. Now another group starts a new chain, and then another one, so we have three e-currencies. The problem for the two new ones is that nobody is accepting them, the companies only accept bitcoins. It would be difficult for the new currencies to be accepted by the business because no one uses them, and no one uses them because no business use them. So people will continue to use the original bitcoins and not the other currencies.

Now, lets imagine the new e-currencies are started by a group of merchants that accept them as a way to promote the new currency. Only in this case its posible that the new currency gets some traction and competes with the original bitcoin. But if there are already a bunch of e-currencies I doubt people will start using one more.

I personally think that having three or four e-currencies competing is good and I hope that with time appears competition. Having only one currency is probably not the safest situation.

Having competing currencies is normal in human societies, its how humans have lived most of the time. But presently we have grown so used to live under a money monopoly that its hard to think how it would work. Its funny and sad at the same time.

[compro01]

I want a currency the state cant seize .

Having bitcoin backed by "authoritah" means they can remove your rights by cancelling your license.

Having bitcoin backed by physical items such as gold means they can seize them.

Bitcoin cant be backed by anything because that anything can be removed.

they can't seize the system you have your wallet.dat file on?

[smellyBobby]

In other words a new crypto-currency would need somehow to come up with a large number of consumers and merchants and some serious miner support at the start to be viable. Easier said than done.

How is this different from bitcoin's by current position? And by extension any future hypothetical crypto-currency? I.e if bitcoin works, then by induction this shows the possibility of a new crypto-currency working. To deny this is to say bitcoin alone will not work.

[edit]
Also ebay didn't have to compete against a other online market places. Bitcoin has to compete against modern day currency systems. Your saying that removing the central printing authority is better than having a authority/s that will recognize/guarantee the value of the currency in some lawful physical way.
[/edit]

[benjamindees]

You make an interesting point about the infinite supply of digital cash.  That is something to think about.

But I'd like you to tell us more about what you mean by "recognized as payment by authorities"...

Do you just mean that fiat currencies are backed by a government that will enforce contracts based on them?  If so, I think that is a somewhat weak assertion.  Courts in the US are generally recognized as worthless for settling contract disputes, and are only used as a last resort when large sums are at stake.  Private enforcement (ie the mob) and third-party transaction insurance (eg paypal) are arguably better models.

Do you just mean that governments accept fiat currencies as payment of taxes?  Are you arguing that high taxes are good for an economy?

Or do you mean to argue the absolute extreme case -- that any viable currency must enjoy absolute monopoly as a store of current value, and this monopoly must be maintained by force?  If so, then I suppose you aren't alone.  Many in the US judiciary are already under the delusion that this is the case with Federal Reserve Notes.  Just look at Kelo v. New London and the recent Liberty Dollar case, where judges and federal prosecutors are more than happy to seize and redistribute property under some notion that Federal Reserve Notes are the final and absolute nationwide unit of account for all that is good, and that any competing measure of value ranging from the value an old lady has in keeping her home to the inherent value of precious metals constitutes a terroristic threat to the sanctity of the Federal Reserve monetary monopoly.

[Anonymous]

Its funny that bitcoin at the moment is a market monopoly on p2p cryptocurrencies.

I can just see someone going to the authorities and complaining that bitcoin serves the needs of its users too well and is being anti competitive.....

Microsoft actually invested in apple when the company was struggling essentially so they could say "we are not a monopoly" to the feds . I could see facebook investing in myspace for that exact reason if the authorities start sniffing around. I can also see bitcoiners supporting a rival crypto fork for the reason that it is dangerous having only one .

Its not in the best interests of safety that there is only one block chain that exists. Do we need a backup block chain ?

[casascius]

Here would be an interesting restructuring of the poll:

Do you think Bitcoin should be 50 BTC forever?

• Yes, and I don't own a significant number of BTC
• Yes, and I own a significant amount of BTC
• No, and I don't own a significant number of BTC
• No, and I own a significant amount of BTC

The main reason I think a consensus could grow to either (a) overthrow the block chain and start over, or (b) continue with 50 BTC for at least much longer than block 210000, is because I feel there is a good chance that lots of newcomers will come and feel that the early adopters are looking to be unjustly enriched by "hoarding" the BTC generated when generating BTC was much easier.

That consensus will come not from us, but from a million newcomers who feel BTC is overpriced because we're hoarding it for a huge speculative profit.

One might ask, what's the point in leaving a fiat currency that unjustly enriches bankers, only to go to another that unjustly enriches its founders and early adopters, ponzi style, at the expense of those adopting the currency?  There is no such thing as "something for nothing"... the massive profits "earned" in speculating BTC come at the expense of those adopting it, just as those at the top of a pyramid scheme profit not out of thin air, but at the expense of those at the bottom.

Most of us here are those "early adopters"... of course we don't "want" the opportunity to be unjustly enriched to be taken from us.  However, what is to be feared is how this same poll would fare out when there's 100 newcomers to each one of us here today.  We've come to throw off Ben Bernanke as a leech, and when 80% of the BTC is in the hands of less than 2% of its users, a mass of newcomers is going to consider us leeches too.

At least with 50 BTC forever, one is penalized for "saving" / "hoarding" in Bitcoin's early stages.  This penalty will tend to zero as time goes on.  Don't fool yourself: "saving" BTC in its early stages is not preservation of wealth, but a means of confiscating it from future newcomers under the guise of "earning" a profit.  Our future newcomers will quickly figure this out.

Only less than 1% of the total future BTC economy participants are at the table... the fact that 25% of the BTC ever to be minted is already circulating is a huge potential landmine for public adoption!

[casascius]

Only less than 1% of the total future BTC economy participants are at the table... the fact that 25% of the BTC ever to be minted is already circulating is a huge potential landmine for public adoption!

Here is another idea I came up with that would help to resolve this disparity.  The goal would be to make it so that only 2.5% of the BTC is issued, rather than 25%.  The problem is, there is no way Satoshi could have adequately predicted that BTC would be adopted far slower than issued.  If Satoshi were around, I wonder if he would consider that a problem.

1. Do a 10-to-1 reverse split, so that every 1 BTC today instantly appears in the software as 0.10 "new" BTC, but new BTC is worth 10x as much.  No one loses anything, it is effectively a move to the decimal point, we are just moving the balance with it.

2. Continue giving 5 new BTC every block, but up through block 2,100,000.  (5 new BTC would be the same worth as 50 BTC today).  Continue the halving methodology, it's just that it will be 1/10 the reward, up through original block number * 10.

Voila, there will still be 21 million BTC issued, it will just take 10x as long to get there.  No one will have lost any value, it's just that the early adopters will wield only 1/10 of the power to profit at the newcomers' expense.  The net effect is that we're giving the world more time to adopt BTC without screwing every latecomer.

Outrageous?  Not as outrageous as fending off against a bunch of people who don't like that early adopters are profiting hugely at their huge expense and who are willing to do something about it, like start a new blockchain.  They're just not here yet.  When they come, we'll have no say in the matter.

[Alex Beckenham]

Only less than 1% of the total future BTC economy participants are at the table... the fact that 25% of the BTC ever to be minted is already circulating is a huge potential landmine for public adoption!

1. Do a 10-to-1 reverse split, so that every 1 BTC today instantly appears in the software as 0.10 "new" BTC, but new BTC is worth 10x as much.  No one loses anything, it is effectively a move to the decimal point, we are just moving the balance with it.

2. Continue giving 5 new BTC every block, but up through block 2,100,000.  (5 new BTC would be the same worth as 50 BTC today).  Continue the halving methodology, it's just that it will be 1/10 the reward, up through original block number * 10.

Voila, there will still be 21 million BTC issued, it will just take 10x as long to get there.  No one will have lost any value, it's just that the early adopters will wield only 1/10 of the power to profit at the newcomers' expense.  The net effect is that we're giving the world more time to adopt BTC without screwing every latecomer.

So someone goes out and spends $2000 on their new mining rig with the view that it's an investment, then suddenly their rig has effectively only got 1/10th the power that he thought it would?

I don't think we need to cater to new-comers in that way at all, just like land owners of 200 years ago didn't cater to the fact that new-comers now probably have a hard time affording a tiny apartment... but there's still people willing to buy said apartments, even if the 'early adopters' of property have expansive wealth today.

[casascius]

So someone goes out and spends $2000 on their new mining rig with the view that it's an investment, then suddenly their rig has effectively only got 1/10th the power that he thought it would?

Nope, it has 100% of the power he thought it would, and then some, since 5 BTC would be worth 10x what it was before the "reverse stock split".  What would be cut by tenths is the percentage of coins already mined.

In such a case, his investment would be worth more, because the mining bounty wouldn't be cut in half in 2013.  It would be some time much later.  The 10.5 million BTC that are easiest to mine would only be 5% gone, instead of 50% gone as they are now.

In fact, the end result would be to encourage mining.  It would help avoid a situation where people want BTC but can't get it except at highly inflated (and volatile) prices, high only because those holding most of the coins won't sell because they're waiting to get rich off them.  More people will have an alternative, they can start mining far into the future.

[N12]

Imagine the same thing with a stock. Why would I ever invest if the rules are going to be changed, maybe even multiple times, as seen fit?

This currency was built upon the foundation of a certain controlled inflation rate. If you tamper with it, you tamper with other people’s investments which were made under this assumption. So essentially, this would be fraud/theft and lead to an enormous drop of trust in a currency in which trust is the only foundation.

Start your own block chain.

[benjamindees]

Exactly.  Stocks are built on layer upon layer of risk due to insider manipulation -- accounting fraud, executives, boards of directors, stock exchanges, monetary manipulation, government intervention, etc..

BitCoin has one layer of risk:  the network itself.

[smellyBobby]

But I'd like you to tell us more about what you mean by "recognized as payment by authorities"...

The only thing that connects the crypto-currency world with the real world is 'faith' by human agents:
                      (a) that someone else will value their bitcoins, fundamentally you have to ask why would another entity value your bitcoins?
                                   i.e With fiat I know that an authority will accept payment using them.
                      (b) That no other crypto-currency will come into existence and devalue their holdings.
                                  i.e It would be hard to start a fiat currency that had value unless connected to something physical, (i.e an entity or resource)

You could say that bitcoin is a religion! Just a really complex one. Modern day currencies have some element ( some would say minor due to 'corruption'/'manipulation') connection with the world that makes it legit. and the value is enforceable. Who will defend the value of bitcoins? I think that it's somewhat shortsighted that somehow 'market' forces can do this, with the current design.

I guess what I am really saying is that bitcoin, undercurrent design, can not exist without a state.

And the solution to this would be a state with distributed design like bitcoin. Bitcoin has been able to some extent remove power from who-ever controls the printing press and transaction processing. This is an amazing achievement by itself. It's this ability to distribute power somewhat randomly that is the true achievement of bitcoin so far, and it's these logical constructs that need to be applied further to design a state that will enforce the value of bitcoin. Now the word force I am using in a abstract sense. It may mean military, production services, I don't know, but it will need to be able to control the behavior of people and it's design will need to be such that people can put faith in it.

So yea it comes down to faith. Currently I believe there are more reasons to stay with the current fiat system then move to the world of potentially unlimited crypto-currencies.

Ofcourse we put faith in our current state systems,
                               
                     we put faith in them to follow the rules that are coded on paper,
                     we have faith that everyone in the community will abide by the rules that everyone has agreed to,
                     we have faith in each other that we will enforce these rules when they are broken,
                     that the rules are applied consistently(this is broken when creating a new crypto-currency, you are creating a new set of rules)
                     
                     we take something that is written on paper, that is abstract and we make it real.

The current fiat system has more elements in guaranteeing this abstractness than bitcoin does. Bitcoin has been able to make sure that some of the rules no longer need faith, but bitcoin needs something 'other' to guarantee it's existence.

imho

[hugolp]

Its funny that bitcoin at the moment is a market monopoly on p2p cryptocurrencies.

Bitcoin is not a monopoly by any means.

There are other currencies around. Even not countirng government imposed currencies (these are the true monopoly) there are other competing currencies around.

But even in the case you want to reduce the market to p2p anonymous currencies (and lets assume Bitcoin is the only one in this sub-market) its still not a monopoly, because any competitor can freely enter the market. Being the only producer is not a monopoly, being the only sactioned producer is a monopoly.

One might ask, what's the point in leaving a fiat currency that unjustly enriches bankers, only to go to another that unjustly enriches its founders and early adopters, ponzi style, at the expense of those adopting the currency?  There is no such thing as "something for nothing"... the massive profits "earned" in speculating BTC come at the expense of those adopting it, just as those at the top of a pyramid scheme profit not out of thin air, but at the expense of those at the bottom.

Most of us here are those "early adopters"... of course we don't "want" the opportunity to be unjustly enriched to be taken from us.

No, and big time no. Nobody here is unjustly enriching from others. Nobody is taking huge profits from anyone. We early adopters took a risk and also had vision to believe in this project, others didnt, and well see who was right and who deserve a reward.

If Bitcoin fails should I go and demand that the others compensate me for the benefits they got while I was dedicating time to Bitcoin? No, that would be unjust. I have dedicated a lot of time to study economics, specially monetary policy and history. All that kwoledge adquired by my own dedication, part of my personal and limited knowledge of the world, has led me to believe in this project. Also, I was there surfing the internet and kept myself informed. Then I spent time promoting Bitcoin and trying to collaborate with the community in this forum. Other people used their time in other things that, given their personal limited knowledge at that time, though it was better for them. If Bitcoin fails do I have the right to demand that they give part of their profits to me? Why am I being unjust, if Bitcoin finally takes off and my efforts are early adopter help to bring a better world with this new currency?

Everybody has limited and local information, and based on that we make our decissions and take our rewards and our lessons. Trying to play god, assume you have all the information and can judge the motivations and situations that led to this outcome is just for dictators.

PS: On more practical grounds, I highly doubt in the future a scenario like the one you describe happens. People just will start using bitcoins because it will be useful to them somehow. I am 100% sure that someone will try to fork the chain and create a inflationary version, but I am 100% sure as well he will fail. History proves that inflationary voluntary currencies just die. Only way you can keep inflating away a curency and having people accept it is using violence. Without government backing, a inflationary currency dies.

[Alex Beckenham]

Imagine the same thing with a stock. Why would I ever invest if the rules are going to be changed, maybe even multiple times, as seen fit?

This currency was built upon the foundation of a certain controlled inflation rate. If you tamper with it, you tamper with other people’s investments which were made under this assumption. So essentially, this would be fraud/theft and lead to an enormous drop of trust in a currency in which trust is the only foundation.

Start your own block chain.

Rules change all the time in other investments (stock, houses, etc). While I agree that it would be like tampering with other people's investments, I don't think it would count as fraud unless the developers guaranteed somewhere not to tamper with it, and then did. But I've seen no such guarantees with Bitcoin, so I take that into account when making my decision to invest.

[Alex Beckenham]

Why don't you try to make all those changes to bitcoin you advocate and see what happens.

Uh sorry vladimir, who were you talking to? I don't advocate making any changes at all... bc rocks as it is!