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.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).
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.
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.
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).
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.
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.
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.
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.
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?
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!
