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Author Topic: 20 some page goldman sachs memo regarding bitcoin  (Read 1455 times)
slaveforanunnak1
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March 16, 2014, 06:55:07 PM
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removing link

Looking Back with Adam, Wei Dai couldn't fathom

https://soundcloud.com/proofofbeats/whonakamoto
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phillipsjk
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March 16, 2014, 08:04:39 PM
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Couldn't help but notice the traitor tracing on every page. Hope you don't get fired for that.

"Bullion bests bitcoin, not Bitcoin" gets it wrong: Gold is failing as a store of value because it is so easy to counterfeit compared to bitcoin.

James' OpenPGP public key fingerprint: EB14 9E5B F80C 1F2D 3EBE  0A2F B3DE 81FF 7B9D 5160
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March 16, 2014, 08:32:42 PM
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I don't work there... I found this online ... Removing link anyway

Looking Back with Adam, Wei Dai couldn't fathom

https://soundcloud.com/proofofbeats/whonakamoto
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March 16, 2014, 10:05:46 PM
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Why did you remove the link?

BTW the report lost credibility when I got to page 4.

"Control over the money supply is an extremely valuable attribute of government that allows it to navigate and minimize or avoid economic problems like recessions or, maybe, asset bubbles."

This is actually in a GS report? Is this deliberate comedy?
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March 16, 2014, 10:16:37 PM
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This is comedy gold.

Later on same page "My view is that
right now central banks in most countries and certainly in
developed countries generally act responsibly. "
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March 16, 2014, 10:26:58 PM
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Sure the central bank's bubble is a lot cleaner than the BTC "bubble" - there are no setbacks (yet).

Truth is the new hatespeech.
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March 16, 2014, 10:28:59 PM
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The link is still in Google's cache of this thread:

http://www.sendspace.com/file/85rygu

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March 17, 2014, 08:42:57 AM
 #8

Some quotes from that Goldman Sachs research document.

Quote
The severe
technological and security problems that have led to the outright
collapse of Mt. Gox – the largest bitcoin exchange globally - on top
of the stunning spike in bitcoin prices by more than five-fold late
last year and spectacular collapse (then some rebound!) since,
some high-profile arrests in the Bitcoin universe, and a swath of
regulators and government officials beginning to weigh in on the
subject have pushed Bitcoin and digital currencies to Top of Mind.

Quote
To start, some of the fiercest believers seem to grab on to the
ideology of Bitcoin as providing an escape from centralized control,
in particular viewing bitcoin as a new currency free from the grips
of any government or central bank. On the other hand, some of the
deepest skepticism surrounds the viability of bitcoin as a currency.
Eric Posner, Professor of Law at the University of Chicago,
believes that bitcoin would be a poor substitute for fiat currency,
and would be unable to overcome likely government opposition as
well as public distrust even if it weren’t.

Quote
And Jeff Currie,
Head of Goldman Sachs commodities research, finds that bitcoin’s
attributes make it a commodity rather than a currency, but he also
believes it is unlikely to replace gold as a commodity store of value

Quote
Fred Ehrsam. Co-Founder of
one of the largest Bitcoin service providers globally, Coinbase,
believes that the technology is revolutionary and, in a payments
context (although there are many other potential applications –
think asset registries, physical locks or programmable money) has
several benefits. One of the largest benefits seems to be that it
obviates the need for middlemen, which lowers the cost of making
payments for merchants and people sending remittances abroad.

The flaw in Fred's logic is if the masses don't want Bitcoin as a currency, then they don't want to be paid in Bitcoin either!

Duh.

Quote
the conventional
players as they are forced to compete or co-opt. Whether Bitcoin is
really a practical solution for the unbanked population currently
reliant on money transfers is also a serious doubt.

I am in the Philippines now. No one is switching from "peso padala" (e.g. LBC, M'lhuiller, Palawan pawnshop, etc) to Bitcoin for sending cash around the country. Because #1 they are not that tech savvy and #2 they would still need to convert the Bitcoin to cash by having a bank account to receive the Bitcoin.

Duh. Duh. Duh. I just can't fathom how stupid Bitards are.

Quote
And security concerns, along with some association of Bitcoin –
which is not anonymous but is pseudonymous – with illicit activity,
have increasingly attracted the scrutiny of regulators. Dax Hansen
and Jacob Farber, Partner and Senior Counsel, respectively, at
law firm Perkins Coie, note that regulators around the world have
recently become less friendly to Bitcoin. While this has generally
not been the case in the US, more US regulation is likely on the
way, which will likely result in more costs. Finally, Ken Hess,
information technology specialist and author, goes one step
farther, questioning not only the ultimate cost of Bitcoin use, but
also the point of Bitcoin altogether. He raises many grave doubts
about the promised advantages of Bitcoin.

And for any one particularly astute, they would see something in the following statement that explains exactly how to make a crypto-currency that actually has demand as a currency, but I doubt any one will be able to think of what is in my mind as I read the following.

Quote
So where does that leave us? With the conclusion that bitcoin
likely can’t work as a currency, but some sense that the ledger-based technology that underlies it could hold promise.

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AnonyMint
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March 17, 2014, 09:04:43 AM
 #9

Quote
Eric Posner: Governments would likely resist it. They have driven
out other types of currencies before, including gold, and they can
do it now with Bitcoin. The main tool that the government has to
effectively force people to use fiat currency is its ability to require
payment of taxes in fiat currency... While that would not eliminate
bitcoin completely, it would certainly prevent it from replacing a fiat
currency.

Beyond that, bitcoin could replace the fiat currency only if nearly
everybody preferred bitcoins to dollars. At this point, we do not
know how secure bitcoins are even if the system itself ...
is secure and transparent. That is because
people have to store their bitcoins somewhere and we all know
that ordinary people do not take security precautions that they
should. I think that people will feel less secure holding bitcoins
than they do with fiat currency. That may change one day, but I do
not think this change will happen quickly

Quote
I also
disagree with those who believe that bitcoin will prevail as the first
mover because of network effects. Network effects will not be
strong because exchanges can handle multiple currencies.

Quote
Allison Nathan: Why would “benign” governments resist
digital currencies?
Eric Posner: One reason would be to block criminal activity. It
turns out that Bitcoin is not purely anonymous, only
pseudonymous, so it is not really very good for criminals! Other
crypto currencies might be more purely anonymous. But should
these currencies make it harder for the government to stop
terrorist financing and drug dealing, etc. that would be a clear and
legitimate motivation for the government to shut them down. More
likely, the government would require those who use digital
currencies to maintain records and act through intermediaries

How can the government require something on people it can't identify?

Quote
Allison Nathan: Do digital currencies really provide an escape
from government?
Eric Posner: There is a real irony here in that history is repeating
itself. Back in the 1990s everybody was talking about the internet
as this great force for freedom. People thought that they would be
able to communicate with each other without government control,
that they would be able to criticize the government, and that they
would be able to engage in transactions that the government could
not stop. But as we have learned from Edward Snowden, the
government controls the internet. It is a big piece of hardware that
the government can tap into and use to learn things about people.
Even when you use sophisticated cryptography, the NSA always
seems to be one step ahead of you. So the internet empowered
the government rather than citizens. Now, 20 years later, people
are saying the same thing about Bitcoin that had been said about
the internet. I am therefore skeptical about the idea that Bitcoin is
liberating and allows people to evade government control.

And that is why we need anonymity for the entire internet.  Wink

And Tor + VPNs are not it.

Quote
Allison Nathan: What do you think drove the meteoric rise in
the bitcoin price?

Eric Posner: My initial reaction was that it was a bubble driven by
people who saw Bitcoin as a way to avoid government and central
bank control over currencies and those institutions’ inflationary
temptations. I thus assumed that the price increase was driven by
a false ideology, perhaps along with greater-fool style thinking. I
have since changed my view. I now think that sophisticated
investors believe that either bitcoin or the technology that underlies
it could be valuable for improving payment systems or for other
applications. This would explain why there has been a boom in all
virtual currencies, not just bitcoin

Well he is correct, but it won't be Bitcoin. And the reasons are very technical and I am not going to explain now.

Quote
Allison Nathan: Are you a Bitcoin skeptic?
Eric Posner: I am skeptical about the idea that bitcoin or any digital
currency could replace fiat currencies. I am adopting a 'wait-and-see'
attitude about the value of the technology for payment
systems or other applications outside of currencies. There is clearly
an interesting technological innovation that probably has valuable
application, but my guess is that this technology will ultimately be
domesticated by firms and governments.

He doesn't see that the currency can't be decentralized by itself, but adding something else can make the combination work decentralized and have demand over fiat.

Quote
And the fundamental obstacles to bitcoin being
used more broadly in the payments system are arguably not
insurmountable, though connections with the conventional banking
system are ultimately essential to its functioning

In other words, the banks and government will be in control. I know a way to change this, but it won't be possible in Bitcoin.

Quote
Stability more doubtful
The issue of whether bitcoin can be a stable store of value has
proved a much tougher hurdle, even leaving aside the security
concerns that have been in the spotlight. By limiting supply, bitcoin
users may hope to protect themselves against the risks of inflation
spikes that have damaged fiat currencies

Wrong! Stability is a function of market size and being a unit-of-account (and nothing to do with a central bank unless you want the base money to be issued as a debt in which case the central bank can delay corrections until the global debt reaches $223 trillion as now).

Since Bitcoin can't gain the adoption of the masses as a currency, then it won't gain stability.

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AnonyMint
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March 17, 2014, 09:45:19 AM
 #10

Quote
Over the past three millenniums, society has learned which
commodities are the most cost efficient at meeting its wants and
needs. The replacement of an old commodity with a new
commodity typically occurred precisely because the new
commodity solved an economic problem that the old commodity
could not. For example, coal replaced wood when fuel was needed
for steam engines. So the question is: is there an economic
problem with gold as a store of value that bitcoin solves?
The short answer is no. Gold is not failing as a store of value as
wood failed as a source of energy in steam engines. Steam
locomotives could go farther and faster on coal. But Bitcoin does
not improve on gold

Crypto-currency can improve on gold by being more hidden and easier to transport. But without very strong anonymity, crypto-currency is not better than gold.

Quote
Ken Hess: Purchasing another currency
to buy things that you could buy with
regular currency just seems pointless
and silly to me. If you're going to buy a
cup of coffee or a camera or any item
why do you need a separate currency for
that?

The masses will take that view, especially in light of all the negative qualities of Bitcoin which I bullet-listed (enumerated) in the other thread.

But there is one reason to use Bitcoin that has nothing to do with the idealism of wanting to end central banking, and that is to hide capital from the government as the socialism goes bezerk and taxes+confiscates itself into the abyss.

Anonymity is the killer feature of crypto-currency. And Bitcoin doesn't have it and won't ever have it (for deep technical reasons).

Quote
For example, Bitcoin enthusiasts seem to suggest that its
anonymity is an advantage. But, first, it is really not anonymous.
Second, even if it were, so is cash. And third, if I am making a
legitimate purchase, why does it need to be anonymous anyway?
Something just feels underhanded about that.

Correct Bitcoin is not anonymous. This has been shown in research papers.

Cash is being phased out by the bankrupt socialism that is going to tax+confiscate itself into the abyss.

Quote
I guess it is cute to be
able to accept bitcoin but that is just an odd and inefficient way of
doing things. I mean, why don’t they just accept dollars and call it a
day?

Correct other than need for anonymity, it is all just geek idealism without any relevance to the masses. Now you add anonymity and we can say it has a serious use that fiat can't and will refuse to do.

Quote
Allison Nathan: How do you explain the enthusiasm around
Bitcoin?
Ken Hess: The enthusiasm around Bitcoin basically comes from
the excitement of putting one over on the government by escaping
its clutches in your business and avoiding some of its taxes. There
is the whole libertarian anarchy feeling about it. It is a pie-in-the-sky
ideology - more something people want to believe in than
something that is actually real.

Correct because we don't have strong anonymity (yet).

Quote
Allison Nathan: Do you see any advantage to being a
distributive system?
Ken Hess: Being distributed means that no one entity or person
controls the system. I don’t really see any practical or logical
advantage to that.

Incorrect. But this requires a deep discussion about macro-economics which I am not going to make now. Later.

Quote
Allison Nathan: Are there any disadvantages of Bitcoin?
Ken Hess: Several. First, transactions are not reversible. While this
could be good for merchants who can rid themselves of charge-
back fraud, the consumer just has to trust that they are going to
receive what they paid for. But there is no guarantee and no way to
get your money back if that ends up not being the case.
Second, if you lose your wallet by accident, your bitcoins are gone
forever. You can read story after story on the Internet about people
losing their wallets and all of their bitcoin. It is not like losing your
physical wallet. If I lose my physical wallet that contains $20, my
driver’s license and credit cards, it is inconvenient. I will have to
replace everything. But I only lose $20, not my whole bank
account! Holding bitcoin should not be akin to gambling; if you own
bitcoin you should be able to recover those kinds of losses.
Third, it is just too volatile to be useful as a medium of exchange.
Fourth, it is nowhere near being adopted widely enough for it to be
useful; if my corporation paid me in bitcoin I would be at an
extreme disadvantage because very few places accept it so I
would have to exchange it for actual money at a cost so that I
could spend it.

He correctly enumerates some of the disadvantages, but I enumerate more.

Quote
And my concern is that while
Bitcoin has been an interesting and, yes, even somewhat
successful experiment thus far, its ultimate, inevitable failure might
set back crypto-currencies several years.

Quote
And so there has been a big question mark, not just about
how you characterize virtual currencies for tax purposes but also
about when you have a taxable event in different kinds of
transactions. But we may be getting answers soon. In May 2013,
the General Accounting Office asked the IRS to provide some
guidance on the tax treatment of virtual currencies. It was reported
about six weeks ago that an IRS ruling should be out soon.

Wow! If the IRS rules each transaction must be logged for capital gains and/or income tax, then that could send Bitcoin tumbling in price because legal tender doesn't have that requirement.

This would cause many to note the masses won't want to do that bookkeeping just to buy a hamburger.

Quote
Dax Hansen: Over the last few weeks, the international responses
have become more unfriendly to virtual currencies. But most
international jurisdictions have generally taken a very hands-off
approach to bitcoin. For instance, in the EU, bitcoin transactions are
generally not regulated. You do not have to have the equivalent of
a money transfer license and you do not even have to have an anti-
money--laundering policy. So my view is that US regulations are
more intense and complicated to navigate than those that exist
internationally, especially given the state patchwork governing
virtual currencies in the US. It is just too hard to set up a
technology company focused on bitcoin here in the United States,
and it is easier to do it someplace overseas.

I believe European Bitcoiners are being fooled if they think that as the European economies collapse in the debt collapse, that the G20 is not going to cooperate to stop capital flight via Bitcoin.

The G20 has already announced it will cooperate with the NSA to track down all capital flight.

The EU is giving European Bitcoiners a long leash to hang themselves with.

The regulation will come because it must, otherwise Europeans can escape the coming tax+confiscations by running to Bitcoin.

See the reason anonymity will be so important?

Quote
Currently, retailers pay a percentage of purchase volume called the
merchant discount rate (MDR) in order to accept electronic forms
of payments. In the United States, the average MDR is about 2.5%
for offline retail payments and 3.0% for online retail payments
(though these fees vary widely by merchant size and type). Today,
the use of virtual currencies could theoretically eliminate these
fees as they do not rely on traditional banking/payment networks.
That said, Bitcoin gateway service providers such as BitPay and
Coinbase, which enable merchants to accept Bitcoin payments,
typically charge a fee of about 1%.

I was a download software merchant in the past. I don't know if it has improved but in addition to the 3.5% MDR, I also paid 0.5% to the payment processor, and I had another couple of percent loses to chargebacks.

So the actual cost to most small internet merchants is 5+%.

That is significant. But again the consumers don't care.

Now if you can offer a significant discount for using Bitcoin, i.e. if the lack of chargebacks significantly lowers your cost of doing business, then consumers would care!

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