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European Central Bank Casts Wary Eye Toward Bitcoin

Soulskill posted about 2 years ago | from the new-is-scary dept.

Bitcoin 301

An anonymous reader writes "Erik Voorhees blogs for bitinstant.com: 'On Oct 29, 2012, the European Central Bank (ECB) released an official (and very nicely prepared) report called "Virtual Currency Schemes (PDF)." The 55-page report looks at several facets of what virtual currencies are, how they're being used, and what they can do. As it happens, the term "Bitcoin" appears 183 times. In fact, roughly a quarter of the whole report is specifically dedicated to Bitcoin and it's probably a safe assumption that Bitcoin's growth over the past year was the catalyst for producing this study in the first place. The report from the ECB concludes, in part: Virtual currencies fall within central banks' responsibility due to their characteristics, and Virtual currencies could have a "negative impact on the reputation of central banks."' Could this be the first step toward regulation of the digital currency?"

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Cast in a negative light, obviously (4, Insightful)

durrr (1316311) | about 2 years ago | (#41865531)

Virtual currencies could have a "negative impact on the reputation of central banks."'

By showing that the legion of morons and regulation and other peripheral bullshit associated with central banks are entirely unecessary and even counterproductive. Thus rendering, among others: the person that wrote the study potentially useless and unemployed.

Re:Cast in a negative light, obviously (5, Interesting)

Twinbee (767046) | about 2 years ago | (#41865635)

I see banks, and their multiple saving schemes, and different types of credit/debit card, and cheque books, and different types of notes, and tedious forms to fill in, and different currencies with all the complicated mess that entails when converting, and I think how nice it would be to scrap it all and start again from scratch, done properly, with almost total automation, and no UWS (Unnecessary Work Syndrome).

That would save billions or trillions of dollars per year probably.

Re:Cast in a negative light, obviously (2, Insightful)

MatthiasF (1853064) | about 2 years ago | (#41865873)

"That would save billions or trillions of dollars per year probably."

And put a lot of people out of a job, don't forget that.

Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible.

So you're stuck trying to balance efficiency with employment.

Re:Cast in a negative light, obviously (3, Insightful)

fridaynightsmoke (1589903) | about 2 years ago | (#41865971)

"That would save billions or trillions of dollars per year probably." And put a lot of people out of a job, don't forget that. Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible. So you're stuck trying to balance efficiency with employment.

That must be why we subsidise the manufacture of buggy-whips and break all the windows every year to keep the glaziers in business, right?

Re:Cast in a negative light, obviously (0)

Anonymous Coward | about 2 years ago | (#41866197)

but we do
Cash for Clunkers to prop up Government Motors?
TV pundits cheering that the gdp numbers are up thanks to reconstruction every time a natural disaster happens?

Re:Cast in a negative light, obviously (4, Insightful)

Twinbee (767046) | about 2 years ago | (#41865991)

And put a lot of people out of a job, don't forget that.

Only in the same way that the number of professional glass makers would be reduced if vandals stopped breaking windows.

Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible.

I disagree. We need to keep or gain productivity, sure. But that's what counts, not the number of workers doing said work. And no, I'm not some hardcore capitalist, as I think a basic income [wikipedia.org] for everyone would be a good idea (unconditional money on top of any regular work income). Even the rich are happier when the poor have a relatively decent standard of living.

Re:Cast in a negative light, obviously (1)

shiftless (410350) | about 2 years ago | (#41866017)

Only in the same way that the number of professional glass makers would be reduced if vandals stopped breaking windows.

Do you think the professional glass makers will willingly just give up all that "free" business "for the good of the economy"?

Re:Cast in a negative light, obviously (3, Informative)

Twinbee (767046) | about 2 years ago | (#41866083)

I was referring to the Broken window fallacy [wikipedia.org] , which could completely remove unemployment, if vandals decided to cooperate. The amount of time and effort wasted with banks and their red tape is pretty similar to that.

Re:Cast in a negative light, obviously (2)

OrangeTide (124937) | about 2 years ago | (#41866157)

Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible.

They can be sent to work in the dilithium mines.

Re:Cast in a negative light, obviously (5, Insightful)

jcr (53032) | about 2 years ago | (#41866241)

And put a lot of people out of a job, don't forget that.

That's a good thing. Any job that can be eliminated through technological advancement makes people available for more important work.

-jcr

Re:Cast in a negative light, obviously (1)

Twinbee (767046) | about 2 years ago | (#41866311)

Yes, or for free time, and enjoying life generally.

Re:Cast in a negative light, obviously (5, Interesting)

Znork (31774) | about 2 years ago | (#41866257)

Indeed, as the ultimate goal of humans is to work as much as possible. Almost everyone on their death bed regrets not having worked more. Or maybe not.

We're rapidly leaving the age of scarcity. Within years whole swaths of current human fields of labour will be rendered obsolete, even now Chinese labour is getting replaced by robots, 3d printing will probably do a lot more in and we're on the cusp of losing vehicle piloting to automation which will wipe out large parts of the transportation industry. Increased demand is simply fulfilled by more automated processes, it doesn't create more need for labour to anywhere near the extent it used to.

Ultimately we will have a choice. Either keep the few employed in productive necessary labour, while directly and indirectly taxing them like hell to support the rest of the population in meaningless make-work or outright welfare. Or we can cut working hours/days until equilibrium is restored and more equitable distribution of labour is achieved.

Personally I prefer the latter. I can live with having more free time, but both working my ass off to keep everyone else fed or, to paraphrase Keynes, doing make-work by burying money and digging it up again just to keep 'money' flowing aren't among the more palatable ways of living life.

Re:Cast in a negative light, obviously (1)

Twinbee (767046) | about 2 years ago | (#41866373)

Did you ever watch Fraggle Rock? In it, there were these characters called the 'Doozers' which lived to just work. They created (edible) 'buildings' just so that the fraggles would tear them and eat their handiwork. Kinda comical really. Anyway, I agree, free time is definitely undervalued. Even some or all of the mostly highly respected jobs will be automated eventually.

Re:Cast in a negative light, obviously (2)

Kergan (780543) | about 2 years ago | (#41866261)

Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible.

Ever heard of Milton Friedman [wsj.com] ?

At one of our dinners, Milton recalled traveling to an Asian country in the 1960s and visiting a worksite where a new canal was being built. He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained: "You don’t understand. This is a jobs program." To which Milton replied: "Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels."

Re:Cast in a negative light, obviously (1, Offtopic)

zotz (3951) | about 2 years ago | (#41866389)

"Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible."

But I have the perfect solution for that little problem and have been quietly promoting it in my country for years now:

The Department Of Beach Surveys.

The government hires people and sends them to the beach every day. They get a clipboard and a short form to fill out daily.

Date:
Location:
Survey Taker:

Did you see any sea life today? Y/N
Did you see any birds today? Y/N
Did you see any land animals on the beach today? Y/N
Was it Windy / Calm?
Was it Sunny / Rainy?
Did you encounter any tourists on the beach today? Y/N
      If Yes, did they seem to be having a good time? Y/N
Did you have an enjoyable day at the beach today? Y/N
Optionally note below anything of interest you might want to.

Perhaps if your country does not have enough beaches, you could send those workers to our country to do the surveys here.

all the best,

drew

Re:Cast in a negative light, obviously (2)

pla (258480) | about 2 years ago | (#41866491)

Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible.

Working to create goods or value does not equal working to shuffle goods or value around on paper (as distinct from physically relocating goods, ie shipping, which does create actual value).

Some jobs just should not exist in the first place. Putting people out of them merely means having people available to do "real" work.

Re:Cast in a negative light, obviously (1)

Kergan (780543) | about 2 years ago | (#41865889)

So, in other words, expand something like the EU's common currency to the entire world for the sake of simplicity? A little birdy tells me this might be problematic in the current political and economic environments.

Re:Cast in a negative light, obviously (0)

Anonymous Coward | about 2 years ago | (#41866011)

If you think that the machinations of the financial sector are somehow dependent on any particular type of currency you are a bloody fool. They'd make sea shells and stone wheels complicated if that's what was used to trade. Don't go around trying to fix problems you don't understand.

Re:Cast in a negative light, obviously (1)

Twinbee (767046) | about 2 years ago | (#41866471)

No I agree with you. You misunderstood me.

Re:Cast in a negative light, obviously (0)

Anonymous Coward | about 2 years ago | (#41866603)

You weren't implying that the process could be improved alongside switching to a completely new type of currency?

Re:Cast in a negative light, obviously (1)

matunos (1587263) | about 2 years ago | (#41865955)

Until bitcoins are widely used enough to become the major currency of a country, a comparison is just specious.

Re:Cast in a negative light, obviously (1)

Sulphur (1548251) | about 2 years ago | (#41866335)

Until bitcoins are widely used enough to become the major currency of a country, a comparison is just specious.

Comparison to specie is specious.

Wonderful (5, Funny)

skipkent (1510) | about 2 years ago | (#41865573)

They're both in the business of creating money out of thin air, so of course they'd see a problem with it.

Re:Wonderful (1)

Anonymous Coward | about 2 years ago | (#41865629)

Welcome to the era of FaceBucks, Google Dollars & Amazon Quids. They're all going to try to become the dominant virtual currency so they control & profit from micro-transactions. Currencies with no oversight or compensation when it gets hacked, exploited or hit with hyperinflation.

Re:Wonderful (2)

skipkent (1510) | about 2 years ago | (#41865729)

At least when a business does it, I know they're doing it for profit. But when the government gets together with bankers on a private island then passes the law on Christmas Eve, you just get a little uneasy that it may be for some other reason.

Re:Wonderful (1)

click2005 (921437) | about 2 years ago | (#41865949)

They do it for the same reasons, they just try to hide it better.

Precisely (2)

Anonymous Coward | about 2 years ago | (#41865647)

Bit coin is a joke currency based on misusing my computers processing time, and the ECB is now operating like the FED with it's OMT's (Outright Monetary Transactions) The only real currencies are:

family

friends

seeds / food / land

survival equipment

gold

silver

Bitcoin, though (arguably) well meaning, is a joke.

Re:Precisely (2)

biodata (1981610) | about 2 years ago | (#41865663)

You forgot the most important one - water.

Re:Precisely (1)

kdemetter (965669) | about 2 years ago | (#41865779)

I have a much more important one : compassion.
Always in high demand and in low supply.

Re:Precisely (0)

Anonymous Coward | about 2 years ago | (#41866379)

Quick, does anyone know the words to kumbaya?

Currency is an accepted medium of exchange. You don't walk in to a convenience store and exchange hugs for Cheetos.

Rare Metals? (0)

Anonymous Coward | about 2 years ago | (#41865689)

You have no idea what money is, do you?

Re:Rare Metals? (0)

Anonymous Coward | about 2 years ago | (#41865851)

Money is not actually worth anything on it's own, if that what you were thinking.
It just serves as a useful temporary substitute for something of actual value ( it doesn't go bad after a few weeks, and is easy to carry around ).

The only value money has is what you believe it has. If suddenly no one believes the money has actually value, than it has none.

Re:Rare Metals? (0)

Anonymous Coward | about 2 years ago | (#41865983)

People use things such as precious metals as money precisely because they do have worth on their own.

Every fiat currency in history has collapsed, gold has not.

Re:Precisely (1)

Anonymous Coward | about 2 years ago | (#41865751)

I prefer not to exchange (parts of) my friends and family for my groceries, nor do I seek to acquire other peoples friends and family. How exactly do they qualify as 'currency'?
Gold and silver, apart from their their industrial applications, are worthless. They have no intrinsic value, only perceived value. Surely that disqualifies them as a 'real' currency?

Re:Precisely (0)

Anonymous Coward | about 2 years ago | (#41865903)

How much for a finger?

Re:Precisely (0)

Anonymous Coward | about 2 years ago | (#41865981)

Two testicles! Time to begin reducing the idiot population again.

Re:Precisely (0)

Anonymous Coward | about 2 years ago | (#41866101)

Gold has kept its "perceived value" for thousands of years. What's the oldest paper currency in use? And how much has it been devalued since creation?

Every paper currency in history has been devalued until its worthless.

Re:Precisely (1)

thoughtlover (83833) | about 2 years ago | (#41866203)

I prefer not to exchange (parts of) my friends and family for my groceries, nor do I seek to acquire other peoples friends and family. How exactly do they qualify as 'currency'? Gold and silver, apart from their their industrial applications, are worthless. They have no intrinsic value, only perceived value. Surely that disqualifies them as a 'real' currency?

Worth is found in something that satiates a recurring need. You need food and water, therefore they are worth something. However, I've often thought that the greatest resource (or currency) is the human being. Without more humans, you will struggle to find comfort (also something that has value or worth). You won't have human comforts like laughter and sex unless there's another human there. So that's why I think it's OK to include family and friends in a list of 'currency'.

Religious orders and governments know that humans are the greatest resource. When you have a bunch of people working together to not only keep society going, but to build new and interesting layers upon it, you have the greatest synergy that comes from humans mingling.. you get ideas. Ideas always have value, whether they're novel or forgotten, then remembered and reused.

Re:Precisely (0)

Anonymous Coward | about 2 years ago | (#41866469)

Can I use any of these to buy cannabis on the Silk Road?

Re:Precisely (1)

pla (258480) | about 2 years ago | (#41866567)

Can I use any of these to buy cannabis on the Silk Road?

Well, you can first sell your little sister for BTC, then use the BTC to buy weed, so, yes!. ;)

Re:Precisely (1)

pmontra (738736) | about 2 years ago | (#41866619)

Gold and silver currencies are not as important as the other ones you listed, not even close to being fundamental. Some countries used shells, they are the same. Gold you mine, shells you fish.

Re:Wonderful (2)

Impy the Impiuos Imp (442658) | about 2 years ago | (#41865921)

A virtual currency has its prpblems, but keeping transactions encrypted and away from pryi (read: taxing) eyes is a government's worst nighmare.

Re:Wonderful (3, Insightful)

arose (644256) | about 2 years ago | (#41866039)

All bitcoin transactions are publicly recorded, it's a cornerstone of the protocol. The only secrecy is that you are pseudonymous as a function of being identified by a public key.

Taxes create demand (1)

betterunixthanunix (980855) | about 2 years ago | (#41866359)

Some amount of tax is good for currency: it creates demand. It creates a believable reason why anyone would want the currency.

Value does not come from scarcity only. There is not much "authentic betterunixthenunix urine" in the world, but I doubt that you would give me anything more than your own urine in exchange for it. Supply and demand are where value comes from, and Bitcoin in particular lacks demand (game currencies don't: you need the game currency to have fun in the game [or to increase the fun or whatever]; note the existence of an authority giving the currency demand and by extension value). Gold was valuable as currency because governments accepted gold for taxes etc.; if the government had not been willing to accept gold, it would just be shiny metal that might fetch some price as metal, but not nearly as much as whatever the government does accept as currency.

first step to regulation of digital currency? (5, Insightful)

nurb432 (527695) | about 2 years ago | (#41865615)

No, its the first step toward eradication of it. The freedom of being able to buy something anonymously is soon coming to an end. Not only does it threaten banks and their empire, but governments too.

Re:first step to regulation of digital currency? (1)

Twinbee (767046) | about 2 years ago | (#41865693)

If people can't be trusted to pay tax, then we could still have something like Bitcoin, automated, online, but officially recorded as well. In a way, I prefer recording the transaction for security purposes (to prove I've paid), but it's quite an involved subject, and I'm sure there are pros and cons.

Re:first step to regulation of digital currency? (3, Insightful)

nurb432 (527695) | about 2 years ago | (#41866031)

A private sale of a used product should not be a tax event ( which is what is mostly happening today with anonymous currency ). It doesn't matter what i bought or sold, I dont want my transactions 'officially recorded' its no ones business other than mine and the seller/buyer.

If you want to talk about businesses not collecting tax on a new item, then that is not a problem of the currency, but of fraud and will be caught evenutally due to 'missing' inventory reports and such. ( and it should still be anonymous, no one needs to know i bought a candy bar.. )

Re:first step to regulation of digital currency? (1)

Twinbee (767046) | about 2 years ago | (#41866209)

I can't see any real problems of even second-hand items or candy bars being recorded. What would the worst case scenario be? I'm sure Facebook et al. are 100x worse, and even that's not incredibly inconveniencing the world.

Re:first step to regulation of digital currency? (0)

Anonymous Coward | about 2 years ago | (#41866455)

you cannot regulate that which you cannot control by force

Re:first step to regulation of digital currency? (2)

pla (258480) | about 2 years ago | (#41866623)

The freedom of being able to buy something anonymously is soon coming to an end.

I know, right? Like how they scanned my driver's license last time I bought something with cash; or how I had to register with the Bureau of Private Transactions this past week when I traded a friend a Snickers for a Milky Way.

Bitcoin makes it easier to make semi-anonymous purchases online. It makes it easier to get around stupid government regulations on how I can spend my money, like anti-gambling laws. It makes it easier to engage in almost any transaction with someone from another country (or rather, "another currency", for those of you in the Eurozone), though that largely goes back to getting around insanely archaic pre-internet regulations.

But anonymity? I'd like to see the governments of the world try to eliminate that from the markets, because it would effectively put an end to any support whatsoever for their useless-in-the-modern-world oversight.

Einen moment, bitte. (5, Interesting)

istvaan (66491) | about 2 years ago | (#41865623)

Correct me if I'm wrong, but isn't the whole premise of bitcoin to be a currency that has no central authority?
That is, it's a currency designed from the ground up to exist without and outside of central regulation and interference.
I suspect that, if regulators attempt to get their hands on it somehow it will consider those attempts to be damage and, like the Internet, route around them.

Re:Einen moment, bitte. (3, Informative)

Sir_Sri (199544) | about 2 years ago | (#41865711)

Well the central authority is built into how it was designed in the first place. You don't need a persistent authority because the core monetary rules of the currency exist from its inception and are unchangeable.

This is of course one of the two fatal flaws of bit coins - like gold - you severely limit the flexibility of the currency to cope with a crisis. And secondly, alternate currencies are essentially a mechanism to dodge tax (including barter), they have other advantages and disadvantages*, but you can use them to dodge tax, which means governments are going to clamp down on it, as it undermines the basis of a functioning society when people are legally dodging large amounts of tax.

And yes, much of this is like regulating the chips in a casino.

*Those advantages and disadvantages matter a lot of course. The primary benefit of Bitcoins is anonymity, which can be accomplished other ways with regular currency (cash..). But that could potentially be a serious drawback if it can be used to circumvent sanctions for example.

Re:Einen moment, bitte. (4, Insightful)

durrr (1316311) | about 2 years ago | (#41865893)

People legally dodging large amounts of tax?
You mean like the entire range of Fortune 500 companies and the associated persons?

Re:Einen moment, bitte. (1)

shiftless (410350) | about 2 years ago | (#41866037)

This is of course one of the two fatal flaws of bit coins - like gold - you severely limit the flexibility of the currency to cope with a crisis

Anyone who knows anything about economics and politics knows that's a benefit, not a drawback.

Re:Einen moment, bitte. (1)

Sir_Sri (199544) | about 2 years ago | (#41866413)

You mean like the entire range of Fortune 500 companies and the associated persons?

and as I said, it undermines the basis of a functioning society. Look at how long and hard the US has had to fight for healthcare, look at wealth distribution, the constant lies told by the corporate media etc. And they are, including fortune 500 companies, on the scale of things, relatively honest. Compared to say, north korea.

Re:Einen moment, bitte. (0)

Anonymous Coward | about 2 years ago | (#41866041)

sanctions on what? on countries? sanctions are on unwashed masses of those countries who may or may not support to offficial policy, but the govt? It will always manage to feed itself, just look at NKorea.
And what if it's your own country that announces it's going to fuck you over and inflate 50% of your life savings overnight and there will be capital flow controls?

Re:Einen moment, bitte. (1)

Sir_Sri (199544) | about 2 years ago | (#41866451)

sanctions on what? on countries? sanctions are on unwashed masses of those countries who may or may not support to offficial policy, but the govt? It will always manage to feed itself, just look at NKorea.

I wasn't suggesting sanctions work or don't work, or a good idea or bad. But they exist and legal rules, and if you're trying to use bitcoins to sell rabits for food to north korean peasants you could be signing yourself up for a world of legal trouble.

And what if it's your own country that announces it's going to fuck you over and inflate 50% of your life savings overnight and there will be capital flow controls?

The same thing that doesn't stop gold from crashing overnight or facebook stock dropping 50%. If you have all of your money in 'cash' or in a single 'thing' including bitcoins you can be screwed.

On top of that, inflating 50% of your life savings, as you put it, also makes your debt 50% easier to pay off with your foreign assets, and your debt all counted, includes government debt incurred on your behalf.

Re:Einen moment, bitte. (1)

arose (644256) | about 2 years ago | (#41866099)

Pseudonymity with an arbitrary number pseudonyms that are all completely independent (you can't swap money between your accounts privately), not anonymity.

Re:Einen moment, bitte. (1)

Richy_T (111409) | about 2 years ago | (#41866461)

For me, the primary benefit is that it is not subject to arbitrary inflation. This is not the case with cash.

Re:Einen moment, bitte. (1)

ultranova (717540) | about 2 years ago | (#41865957)

I suspect that, if regulators attempt to get their hands on it somehow it will consider those attempts to be damage and, like the Internet, route around them.

Bitcoin has two problems: the size of the network and the fact that there is a network.

The size of the network is a problem because an attacker with more computing power than the rest of the network combined can subvert Bitcoin. At the current size, it's plausible that a government might be able to do this. This is also a problem with any future decentralized currencies: until they're big enough they are vulnerable, and getting big requires drawing attention - which will include that of malefactors. This will always be a problem with proof-of-work based systems.

The fact that there is a network is a problem because it means a government can find out who runs Bitcoin software, thus making it possible to ban it. This might be worked around by routing network connections through Tor, however it makes it difficult for merchants to accept Bitcoin.

Re:Einen moment, bitte. (1)

click2005 (921437) | about 2 years ago | (#41866079)

If any regulation is added it'll be no different to Chip & Pin, Verified by Visa or any number of other security failures badly added to prevent fraud (shift liability to the customer) or as an inconvenience (DRM).

Trying to add some kind of regulation would probably be so badly implemented that it'll increase the risk of fraud or exploitation.

Re:Einen moment, bitte. (1)

IcyHando'Death (239387) | about 2 years ago | (#41866087)

... it will consider those attempts to be damage and, like the Internet, route around them.

The nineties called; they want their argument back (they're probably looking to get this put-down back too).

What we've seen in the last decade and more is that regulation of the digital realm is absolutely possible (think "Great Firewall of China") and can shut down or marginalize targeted activities quite effectively. Not perfectly, mind you, but law enforcement has never been perfect in the analog world either.

Time to update our thinking.

Re:Einen moment, bitte. (0)

Anonymous Coward | about 2 years ago | (#41866503)

Give me a list of activities, disapproved of by authorities, which have become shut down or marginalised in the last decade. Copyright infringement? Nope. Sharing of CP? Doubt it is any less common than it used to be. Whistleblowing? Wikileaks is still here isn't it?

Yeah, the worst is still to come when it comes to destruction of our civil liberties, but the end game is far from predictable at this point. Comparing the future situation in Western countries to the Great Firewall is flawed because of, among other reasons, differences in cultural attitudes, and the fact that in such an enormous population there are already far more people using the internet for disapproved-of activities that you probably realise.

Re:Einen moment, bitte. (1)

betterunixthanunix (980855) | about 2 years ago | (#41866171)

Correct me if I'm wrong, but isn't the whole premise of bitcoin to be a currency that has no central authority?

Aside from the serious technical and economic problems that creates, there is nothing about a lack of central issuing authorities that makes Bitcoin impossible to regulate. People do, in fact, rely on the government to do things for them, which is why the government is able to regulate anything at all. You know those daytime court shows, where some celebrity judge settles disputes between ordinary people? That is not just TV; ordinary people do, in fact, have disputes with each other and with the businesses and organizations they interact with, and more often than not those disputes involve money. We use courts to settle those disputes, by respecting the authority of the courts and by allowing the police to arrest people who violate court orders. If everyone started using Bitcoin and coming to courts with disputes over Bitcoin contracts or transactions, the government would be able to regulate Bitcoin; if you failed to bring the proper paperwork to court, showing that you abided by the regulations, you would lose your case and possibly be arrested.

The alternative is to settle disputes with strength, coming at people who owe you Bitcoin (or who you feel owe your Bitcoin) with guns, knives, clubs, rocks, and fists. That would basically lead to the collapse of civilization, and ironically, the collapse of Bitcoin.

Good luck with that (4, Insightful)

stevegee58 (1179505) | about 2 years ago | (#41865665)

I'm not sure how a decentralized, electronic currency can be "regulated" at all.

Re:Good luck with that (2)

cmburns69 (169686) | about 2 years ago | (#41865925)

You can "regulate" it by making laws against using it at all. Enforcing them may be difficult, but it could come to the point of it being a criminal offense to even have bitcoin software installed on your machine.

Re:Good luck with that (1)

cyberjock1980 (1131059) | about 2 years ago | (#41866121)

I have a few friends that have considered going into Bitcoin. I always make the same comment the parent mentions. All your government has to do is pass a law making it illegal and suddenly its worthless, unless you don't mind breaking the law.

Re:Good luck with that (1)

stevegee58 (1179505) | about 2 years ago | (#41866313)

I recall a law like that in the past. It was called Prohibition. Turned whole populations into criminals until they repealed it.

Re:Good luck with that (2)

betterunixthanunix (980855) | about 2 years ago | (#41866059)

  1. Barter is regulated in the United States. You are expected to report large barter transactions on your taxes, and if you fail to do so you could be caught in an audit.
  2. Good luck taking someone to court with a dispute involving an unregulated currency.

Yeah I know, anarchist fantasies about the world of people living without the government. Except that we do not live in a fantasy, we live in the real world where disputes need to be settled and where settling disputes without courts degenerates into violence (see: gang war).

Re:Good luck with that (2)

Richy_T (111409) | about 2 years ago | (#41866475)

Between losing a few bucks now and then to disputes which aren't settled satisfactorily and losing more than a third of my income to the government each year, the choice is an easy one.

Re:Good luck with that (1)

betterunixthanunix (980855) | about 2 years ago | (#41866511)

More like losing your life to a dispute. Here is what happens when we don't bother with courts to settle our problems:

https://en.wikipedia.org/wiki/Murder,_Inc [wikipedia.org] .

Re:Good luck with that (0)

Anonymous Coward | about 2 years ago | (#41866179)

The same way real currency is regulated.

Re:Good luck with that (0)

Anonymous Coward | about 2 years ago | (#41866535)

Pretty easily actually. If it's illegal for businesses to take it as a form of payment, how are you going to get people to use it? Obviously as a p2p form of payment for goods and services it would work. But if you can't go to a store and buy something with it, or at least turn it back into a hard currency, what exactly is it good for again?

*puts hand on ECB* (0)

Anonymous Coward | about 2 years ago | (#41865769)

It's afraid.

Oh goodie. More "help" from our governments (0)

Anonymous Coward | about 2 years ago | (#41865775)

Yep, they know what's best for YOU.

Because YOU are too stupid to figure it out for yourself.

A threat to the printing machine (2)

InPursuitOfTruth (2676955) | about 2 years ago | (#41865781)

Bitcoin does potetially weaken the power of central banks and governments, transfering it back to the people, the way it was for thousands of years. Is it an outright threat? Only if your goal is to control people through virtual currency, and maintain the power to transfer wealth from the people to the government without the people being able to oppose it by printing money.

Interestingly, while we compare it to western banking, it really undercuts more corrupt regimes that try to boalster their self-inflating currencies by putting up roadblocks to currency trade... e.g., Argentina's heavy restrictions on purchasing US Dollars with pesos in order to continue the wealth transfer to the government through currency inflation money printing. You'd think that western governments would be a bit more supportive of a decentralized virtual currency that helps people in countries like that.

Perhaps people should just tell the ECB it is like a game currency (Linden dollars)...

Re:A threat to the printing machine (2)

betterunixthanunix (980855) | about 2 years ago | (#41866283)

Bitcoin does potetially weaken the power of central banks and governments, transfering it back to the people, the way it was for thousands of years.

Nonsense. At no point in human history has a disorganized group of people had any meaningful currency. Currency is valuable because of authority; societies stay together because there are authorities keeping the peace.

No, it is not fascist to say that. Courts have authority; the reason people don't go around killing each other when they feel like they are owed money or that they were cheated is that we have such authorities, and that we respect their decision. The point of democracy is to ensure that such authority is imposed with the permission of the people living under it.

People did not use gold as currency because it is shiny. It was used because there was no better technology around to prevent counterfeiting, nor was there a good technology for printing money on paper (for that matter, there was no paper). Gold is not the only currency that was used prior to paper money; there is some evidence that clay was used to issue money in ancient Mesopotamia. Beyond very small, ad-hoc schemes, however, the commonality in money since the beginning of civilization is government: money has value because of government.

Yes, see, "medium of exchange" is nice, but why gold over clay, or over tobacco, or some other medium? Why US dollars in the US, but Canadian dollars in Canada? It's not that the government has a gun pointed to your head telling you that you must only use US dollars. It's that things like taxes, court settlements, fees for government services, and so forth all require US dollars; that is where the demand for US dollars comes from. As long as that demand exists somewhere in the world, and as long as the supply of US dollars is not infinite, US dollars have value. Take the US government away, and pretty soon people will realize that US dollars are worthless.

Yes, I know, inflation and blah blah blah. That's a supply issue. Bitcoin has no supply issue, but it has a serious demand issue. The demand for Bitcoin is dwarfed by the demand for government issued currency. Game currencies have more demand than Bitcoin. That is the reason Bitcoin is going to fail in the long run: eventually people are going to realize that they are selling their Bitcoin more than they are buying Bitcoin, and then the scheme will collapse (if deflationary spirals don't kill it first).

Re:A threat to the printing machine (1)

Richy_T (111409) | about 2 years ago | (#41866551)

Bitcoin may yet fail. And yet more and more, people see their savings dwindle away as the government prints more money or find that it's not even worth having savings and so we have the terrible consumer debt-ridden powder keg we now live in. People will want to store their wealth somewhere other than the next bubble. Bitcoins offers a similar option as gold which is, after all, just a shiny metal with little industrial use.

The delflationary spiral is a lie, brought to you by the same kind of thought processes that brought Muthusian catastrophe theory and pushed by people who want an excuse to steal your wealth by inflating the money supply (purely for humanitarian reasons, of course).

Bitcoin is doomed because of programmed deflation (4, Insightful)

MatthiasF (1853064) | about 2 years ago | (#41865791)

Not many people realize why central banks exist, but their primary role to to assure a consistent monetary policy, specifically one encouraging minor inflation (1-4%). Why is that important and necessary? Because economies run best at a steady, expected pace. When inflation grows out of control, habits change with spending and investing (people buy less long term investments and more short-term riskier ones, or consumers horde goods) and we know from history that when an economy goes from inflation to deflation there is massive chaos not only in the markets but with consumer spending (as people sell off short-term investments for long term or consumers decide to hold off buying things knowing the cost will go down).

So, economic systems need a slow upward progression for currency to assure the economy to be healthy and Bitcoin offers that with the algorithmic generation but if the coins are generated too quickly (by some advance in computer processing), horded by a few people or other circumstances that reduce the liquidity of the currency (like the massive exchange thefts we've seen), the currency itself will begin to shift from the programmed inflation to deflation.

What's more is the fact that Bitcoin has a limit to the number of coins, which means when it hits that limit and the price of an apple goes from 1 coin to 0.1 coin, you just created programmed deflation and the behaviors of the users of the currency will change causing chaos against other world currencies that are targeting gradual inflation.

Re:Bitcoin is doomed because of programmed deflati (0)

Anonymous Coward | about 2 years ago | (#41865927)

oh noes
predictable inflation is good but predictable deflation is bad? Why exactly? I can plug +1% and -1% into equations just fine. Do you like automatic paycut in the name of the almighty economy that much? Consumption and shit wouldn't be propped up to boost meaningless gdp number and the planet earth would be happy with slower pace of resource extraction. Why do you hate planet earth?

Re:Bitcoin is doomed because of programmed deflati (0)

Anonymous Coward | about 2 years ago | (#41866137)

It's only predictable if it can be adjusted to changes in the market. If there is a sudden jump of efficiency in the production chain the deflation will be out of control, nothing predictable about it.

Re:Bitcoin is doomed because of programmed deflati (1)

Anonymous Coward | about 2 years ago | (#41866319)

wtf? efficiency means undercutting competition and winning the consumers. Cheaper goods for everybody, where is the problem exactly?

You say the current situation is better? Nowadays the only way to make a decent buck is to frontrun yet another stimulus program of the Fed and the ECB, that recycles the purchasing power confiscated from the unwashed masses by inflation. Do masses have that kind of insider knowledge required to 'bet' right, or maybe bankers do (betting assumes you can lose, bankers don't lose)?

Re:Bitcoin is doomed because of programmed deflati (2, Insightful)

Anonymous Coward | about 2 years ago | (#41865939)

I hear this tirade over deflation over and over again... but I see no actual evidence for it, and there is a spectacular counter-example: technology. The tech industry has been in constant deflation since its inception. You get more and more computer (memory, storage, processing, bandwidth, what-have-you) for less and less money every year (if not every month). Yet the tech industry has not come falling down because of rampant deflation. Where's the proof that deflation is bad?

Re:Bitcoin is doomed because of programmed deflati (1)

arose (644256) | about 2 years ago | (#41866191)

It's been in inflation, not deflation. You did show, however, that people would still actively produce something that's value was virtually certain to drop rapidly, congratulations.

Re:Bitcoin is doomed because of programmed deflati (0)

Anonymous Coward | about 2 years ago | (#41866293)

There was a lot of deflation, then the Great Depression happened. By the ironclad law of Correlation = Causation, this single data point proves that deflation = depression.
(Welcome to Keynesian economics.)

Re:Bitcoin is doomed because of programmed deflati (2)

Linsaran (728833) | about 2 years ago | (#41866199)

It will be a long time until BitCoin reaches the maximum number of coins in circulation, specifically around 2140, and at the time, the number of bitcoins will be approximately 21 million. Since each bitcoin is currently divisible up to 8 decimal places, that means that when those last bitcoins are mined, there will be about 2.1 quadrillion individually accountable units of bitcoin currency available for use. That means that there is a controlled inflation value until 2140, and only after that point would deflation be inevitable. If we're still using bitcoins in 2135 or whenever that becomes a serious concern I'm sure some enterprising fellow will create a bitcoin clone, and encourage users to switch (which they will if they realize their money can only depreciate in value).

Considering the gross world product for 2011 was just about $79 trillion USD, (or if we include the currently smallest common division of US currency in our calculations, the penny, we have aproximately 7.9 quadrillion individual units of currency) I think the number of potential bitcoins is plenty to compete with any other world currency. Especially since although the GDP figures above are listed in USD, the actual distribution of GDP is in USD, CAD, Euros, Yen, and whatever other currencies you can think of.

Re:Bitcoin is doomed because of programmed deflati (2)

PhamNguyen (2695929) | about 2 years ago | (#41866435)

Well said, but I would like to clarify some things you said.

Even though the exact nature of the price level (value of money) is still a bit murky to economists, it is generally agreed that the total value of money should have some relation to the total value of the economy. That is, the total value of money should be approximately equal to some fixed proportion of the total value of the economy. We can think of this as the equivalent of setting aside a percentage of the economy to use for barter.

Now since the economy is always growing in real terms, this means that the total value of money must also grow.

But if the number of bit coins is fixed, and it's value is growing in real terms (i.e. faster than interest rates), then it becomes a valuable investment. Or put another way, with rational investors the value of bit coin cannot grow over time. Fiat money doesn't suffer from this problem (gold may or may not) because central banks print money.

In fact, this is the reason central banks print money, beginning with monetarism (growing the money supply at a constant rate) and moving on to modern methods which target inflation to a constant amount. I really wish more people would read about this instead of blindly following charismatic non-experts. It seems like anti-reserve banking is the new creationism.

Overhyped summary (1)

Kergan (780543) | about 2 years ago | (#41865813)

The actual report is about all virtual currency schemes, including the likes of Bitcoin, PayPal, or Second Life money.

Moreover, the precise conclusions from the executive summary:

It can be concluded that, in the current situation, virtual currency schemes:

- do not pose a risk to price stability, provided that money creation continues to stay at a low level;
- tend to be inherently unstable, but cannot jeopardise financial stability, owing to their limited connection with the real economy, their low volume traded and a lack of wide user acceptance;
- are currently not regulated and not closely supervised or overseen by any public authority, even though participation in these schemes exposes users to credit, liquidity, operational and legal risks;

Translation: they're completely irrelevant to the monetary system as things stand, are unregulated, and present the same kind of risks as legal tender does (aka you can go in debt).

- could represent a challenge for public authorities, given the legal uncertainty surrounding these schemes, as they can be used by criminals, fraudsters and money launderers to perform their illegal activities;

Translation: criminals can do illegal stuff with Bitcoin and PayPal.

- could have a negative impact on the reputation of central banks, assuming the use of such systems grows considerably and in the event that an incident attracts press coverage, since the public may perceive the incident as being caused, in part, by a central bank not doing its job properly;

Translation: if a virtual currency scheme collapses, victims might point to us for not having regulated it earlier.

- do indeed fall within central banks’ responsibility as a result of characteristics shared with payment systems, which give rise to the need for at least an examination of developments and the provision of an initial assessment.

Translation: those victims would be right in the sense that they traded actual currency for virtual currency.

So... basically, the ECB is flexing its muscle in the hopes of getting more power and responsibilities.

The whole thing prompts a remark, though: the cases of PayPal et al in the EU are reasonably well settled insofar as who gets to regulates: most operate as UK financial institutions. To the best of my knowledge, things are a lot murkier outside of the EU, or in the case of Bitcoin or virtual currency bought through in-app purchases.

19th Century (5, Interesting)

TubeSteak (669689) | about 2 years ago | (#41865821)

But beyond any market-level incidents caused by a new currency, itâ(TM)s important to understand that virtual currencies can actually damage the faith people put into central banksâ"and fiat currenciesâ"as institutions themselves. People are taught that central banks are necessary to manage money supplies (even though the US boomed through the entire 19th century, most of which didnâ(TM)t have a central bank). But, if it is demonstrated that money can work without central planning, and maybe even work better, then indeed the faith in central banks will be undermined, and with good reason.

Why do we have centralized banking (aka the Federal Reserve System) in the USA?
https://en.wikipedia.org/wiki/The_Panic_of_1907 [wikipedia.org]

And you know what the solution to that panic was?
A bunch of rich guys injected liquidity into the system because there was no central bank to do so.
100 years later, when confronted with the same market situation, our central bank injected liquidity into the system and kept things from getting worse.
Imagine that! Unelected ivory tower banking eggheads made the exact same move as laissez-faire capitalist J.P. Morgan and friends.

The issues surrounding non-centralized banking isn't whether money works better or worse,
it's about what happens during the edge cases, when shit hits the fan.

Re:19th Century (0)

shiftless (410350) | about 2 years ago | (#41866077)

And you know what the solution to that panic was?
A bunch of rich guys injected liquidity into the system because there was no central bank to do so.
100 years later, when confronted with the same market situation, our central bank injected liquidity into the system and kept things from getting worse.

So you claim.

Re: "The Panic of ____" (1)

TaoPhoenix (980487) | about 2 years ago | (#41866215)

From my very cursory recall of my history classes, the Panics of ______ tend not to get touched on, which is funny if they were bad enough to be called "Panics of ____". There's a bunch of them, I'm too lazy to look up the exact dates, but one after the Civil War, one near the 1890's, and now the 1907 one. The main money event anyone really remembers is the Great Depression day.

Re:19th Century (0)

Anonymous Coward | about 2 years ago | (#41866405)

Unelected ivory tower banking eggheads made the exact same move as laissez-faire capitalist J.P. Morgan and friends.

Except the Ivory tower eggheads created credit out of thin air and stole wealth from anyone who held dollars. JP Morgan and friends did not and while the banks back then could have done so, they would have risked a run on the gold they held on deposit.

negative impact on the reputation of central bank? (0)

Anonymous Coward | about 2 years ago | (#41865849)

How could anyone possibly have a more pronounced negative impact on the reputation of central banks than those banks themselves? What universe are these jokers living in?

No,on the contrary ! (2)

vikingpower (768921) | about 2 years ago | (#41865941)

Could this be the first step toward regulation of the digital currency?

This might be a further, albeit small, step toward further success of digital currencies in general and Bitcoin in particular. If and when a central bank reacts in such a way, such a reaction may betray it feels threatened. Which proves at least implicitly that virtual currencies in general and, particularly, Bitcoin fulfill their purpose. QFD.

ECB choice of words (1)

vikingpower (768921) | about 2 years ago | (#41866045)

From my dearest possession, the Oxford English Dictionary:

"Scheme: 5.b. A plan of action devised in order to attain some end; a purpose together with a system of measures contrived for its accomplishment; a project, enterprise. Often with unfavourable notion, a self-seeking or an underhand project, a plot, or a visionary or foolish project"

The ECB systematically referst to virtual currencies ( and to Bitcoin ) as "schemes". The contempt of these bankers in their Frankurt ivory tower is almost tangibly present in this report....

Control vs Freedom (1)

u64 (1450711) | about 2 years ago | (#41866217)

The Euro experiment has been tried - it mostly failed. Time for a p2p world currency to give it a try...

Demand (2)

betterunixthanunix (980855) | about 2 years ago | (#41866315)

Now explain where the demand for Bitcoin comes from. People don't magically start accepting currency; there needs to be a compelling reason for them to do so. Compelling reasons for most currencies are: taxes, the court system, legal tender, and more generally the law. Now, what does Bitcoin have, other than the age-old scam phrase, "Other people will accept it!"

Re:Demand (0)

Anonymous Coward | about 2 years ago | (#41866545)

The demand for Bitcoin comes from the need to do direct peer to peer payments without percentage of the money taken by PayPal or some other entity. The ability to avoid tracking and some law enforcement is goal only for some users.

What Does the Market Say? (1)

PhamNguyen (2695929) | about 2 years ago | (#41866323)

What does that market say about the future of bit coin? If investors have correctly priced bit coins, then their value relative to USD should be "fair" (that is, it's expected future value should be the same as that of USD). However the total value of bit coin is $100 million USD, and 75% of all bit coins that will ever be produced have already been produced. Therefore the total value of all bit coin, in today's dollars, is $133 million USD. Compare this to MB (supply of hard currency and Federal reserve balances) which was about $900 billion before the financial crisis (MB is the equivalent of the total value of all bit coins, since if we were to create fractional reserve banking system based on bit coins, it would use bit coins as its money base). So the total present value of all bitcoins today is about 1/7000 of the total value of all US dollars today, and with time this can only go down, since more US dollars are produced every day.*

Note that this is under the assumption that bit coins are correctly priced. If you believed bit coins will eventually catch up and become 1/100 of the US economy, that means that bit coins are underpriced by a factor of 70, and you should probably be buying some!

*You might object that inflation cancels this out, but the combined effect of inflation and printing money is that the total value of the money supply grows with time, at about the same rate as the economy, which slightly outpaces interest rates, so that the present value of the total US money supply in year X, grows exponentially with X.

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