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Why Bitcoin Is Doomed To Fail, In One Economist's Eyes

timothy posted about 8 months ago | from the wish-I-had-some-to-whine-about dept.

Bitcoin 537

Hugh Pickens DOT Com writes "Economist Edward Hadas writes in the NYT that developers of bitcoin are trying to show that money can be successfully privatized but money that is not issued by governments is always doomed to failure because money is inevitably a tool of the state. 'Bitcoin exemplifies some of the problems of private money,' says Hadas. 'Its value is uncertain, its legal status is unclear, and it could easily become valueless if users lose faith.' Besides, if bitcoin ever really started to take off, governments would either ban it or take over the system says Hadas. The authorities might be motivated by a genuine concern about the stability of a shadow monetary system or they might act out of self-preservation because tax evasion would be too easy in a parallel economy. 'Part of the interest in virtual currencies like bitcoin is that their anonymity can provide a convenient cloak for criminal activity. Part is technological — this is a cool idea. And part is speculative — gamblers bet that bitcoin's value will increase,' concludes Hadas. 'Truly private money is an inferior alternative to the money that comes with the backing of a political authority. After all, no bank or bitcoin-emitter can be as public-minded as a government, and no private power can raise taxes or pass laws to unwind monetary excesses.'" Could be there's something good about money that can't be manipulated by law. Some people at least think there's plenty of value in Bitcoin and similar currencies, despite the risks. And those risks at present probably aren't enough to comfort the unfortunate Welsh fellow who (HT to reader judgecorp) "has realised he threw out a hard drive containing 7500 bitcoins, worth £4 million at today's prices. It is now under four feet of garbage in a landfill site the size of a football pitch."

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Nope (3, Insightful)

Anonymous Coward | about 8 months ago | (#45548913)

He's just pissed he didn't mine bitcoins when it was still practical.

Re:Nope (4, Insightful)

ShanghaiBill (739463) | about 8 months ago | (#45549081)

The author doesn't seem to understand how Bitcoin works. He seems to think that some mysterious computer programmer is the "issuer" of the currency. He says that governments will "take control", without explaining any mechanism for them to do so. His grasp of economics is questionable as well. He says that governments have always controlled currency. But prior to the American Civil War, private currency circulated. His claim that governments are better at protecting us from "monetary excess" made me laugh. Bitcoin may fail, but not because of the reasons he gives. But he hedges in his last paragraph, and says bitcoin will thrive "until the authorities do better", which means it may be around forever.

WD et al. (0)

Anna Merikin (529843) | about 8 months ago | (#45549217)

he threw out a hard drive containing 7500 bitcoins,

Oh. This money is not kept in vaults, but on Seagates and WDs.

Keep a copy of SpinRite around....

And a USB-to-RLL/IDE/PATA/SATA connector for when standards and interfaces change.

Fools.

Re:Nope (3, Interesting)

gl4ss (559668) | about 8 months ago | (#45549233)

yeah it sounds like that.

if anything it's more legit legally now than when it started.. and yeah, monetary excess. tell that to zimbabwe. very good at protecting from that.

also, if you're dodging taxes you're dodging taxes.. it's not like using real money or not is affecting that. easy enough for government officials to pop in and check if your store has been declaring any income or not and hey fucking google, apple & all are all moving it through ireland anyways dodging taxes by phony on-paper valuations of their products or services so what new problems would we have again with this?

except that governments couldn't borrow money from people without asking people - that's what printing or creating more money ultimately is, diluting value of the money already out in circulation and if the money isn't a number on a computer or a stack of paper they print then they just would need to find someone to borrow from if they want to borrow, since they couldn't create bitcoins on a whim. why do governments tend to do that instead of taxing or finding someone to borrow from? well heck it's easier than raising taxes since people don't notice it as fast so you can snowball it for a while before the outrage..

on the subject of private currencies.. krupp gave out their own currency during the great inflation. normally I'd frown upon forcing you to buy from the company store with your paycheck but damn the government had really fucked up then.

bitcoin is funny in that it's just numbers, yet people give some value to it because creating the numbers is harder than it is for governments to issue mo' money.

ultimately it would be fine to have total separation of whoever handles the "money" and the state, which would help people separate their life savings from the state. would be useful. maybe we'll get something like that in a few hundred years.

Re:Nope (1)

MickyTheIdiot (1032226) | about 8 months ago | (#45549237)

I didn't read this fine article, but having read some similar in the past it seems like some economists have horrible visceral reactions to Bitcoin because they they have firm stakes in how the status quo works. If something comes in and changes the rules then they their value will diminished or their way of life will be gone.

I don't know if Bitcoin will make it or fail, but something like it is in the works that will take hold and it's threatening to economists, some of which are the "prophets" of the corporate worshiping economy.

Re:Nope (1, Funny)

linuxdoctor (126962) | about 8 months ago | (#45549243)

Of course Edward Hadas' grasp of economics is questionable, he's an economist. The field of Economics long ago retreated from the reality of economics when it transformed itself from an honest inquiry of human economic behaviour into the netherworld of suspect and irrational ideology.

Re:Nope (4, Insightful)

0123456 (636235) | about 8 months ago | (#45549321)

Economists who don't tell banks and governments what they want to hear don't have jobs for long. So, obviously, most of what they publically spout is complete nonsense.

Re:Nope (1)

Anonymous Coward | about 8 months ago | (#45549245)

NSA has enough computing resource to "mine" remaining bitcoins should they decide to do it.

Re:Nope (4, Insightful)

magic maverick (2615475) | about 8 months ago | (#45549247)

Moreover, even if bitcoin fails as a currency, it still works very very well as a means of money transfer. Which is one of the reasons I support it. Paypal takes a large chunk of any money transfered, Visa and Mastecard take a large chunk, etc. All can (and have) cut off payments to undesirables. Etc. There are so many issues with centralized payment processors.

Bitcoin though, is brilliant. Being decentralized, it is strongly resistant to attempts to prevent donations going to "undesirables". The fee charged is a small percentage of that the major companies charge (and is not even required at the moment, as most miners will still process transactions without a fee). Etc.

And, if you don't keep your money in bitcoin (which does mean you have to trust a thirdparty "exchange"), you don't have to worry about exchange rates either. Just have the bitcoin changed directly to the currency of your choice, and withdrawn immediately from the exchange.

Also, obviously this economist doesn't know enough about bitcoin to pass judgement. It is not an anonymous currency, at most it is pseudonymous. And, just as obviously, this economist doesn't know about history. As an AC has already said, private currencies were very popular before the 20thC. Around the world.

Re:Nope (0)

Anonymous Coward | about 8 months ago | (#45549279)

you are the one who doesn't grasp the basic concepts of these e-coupons that aren't honored in most places.

the "Wildcat Banking Era" of which you speak had banks chartered under state laws, and they were unsound and often failed. Hence the National Bank Act of 1863

Bitcoins will likely fail for exactly the reasons cited, though they aren't really money but just e-coupons.

    -- rubycodez

Re:Nope (0)

Anonymous Coward | about 8 months ago | (#45549285)

These were the same thoughts that came to my mind.

The other question I had was: "If he thinks it will fail, how does he define succeed?" Bitcoin is arguably a "success" once international or internet transactions use it, primarily (minimally, instead of USD passed through credit cards).

Sure, you _could_ use it as a local or state currency but that is unlikely to happen. I don't see that as a problem, though, as there is an argument in favour of a state maintaining its sovereignty via control over their monetary policy (although, even today, that is done only at arms-length - central banks are generally distinct from their host governments).

Re:Nope (1, Insightful)

roman_mir (125474) | about 8 months ago | (#45549327)

Worse, the author doesn't understand what money is in the first place. Money is a claim on future consumption, it's a store of value, unit of account and means of exchange. But money is actually meaningless without ability to use it to buy something, so what is important to consider is whether there will be any productive output in the future that somebody with money can claim a portion of.

Given this, it is clear that any private issuer to emit money or currency that is backed by money. It is not government, that allows money to have value, it is private enterprise that produces something that gives money any meaning at all. Government cannot ever issue money, all money is supposed to be backed by productive output and productive output is not what governments do.

Government can issue currency, either it is backed by real money (gold) or it is not (fiat). Real money does not come into existence by the desire of either government or any private entity, that's why Bitcoin is 'doomed to failure', because it is not actually backed by any productive capacity. It is doomed to failure for the exact reasons that any fiat currency is doomed to failure and it doesn't matter who issues fiat, a government or a Bitcoin miner.

Now, I am not implying that Bitcoins will go down in price to 0 and not rise back up, I am not making any claim on the future price of Bitcoins. For all I know it is absolutely possible that 1BTC will = 1,000,000,000 USD in 2 years time, I don't know.

What I do know is that Bitcoin is a fiat currency that has no backing by any real money and it is indistinguishable from any other future (or current) version of electronic fiat currency and it is a tool of speculation. You will probably grow your savings if you buy Bitcoin even today and sell it at some future date.

If you fail to sell it at the right moment in time, you will probably lose your savings. That much is certain - eventually it will crash and not come up again, but when that will be I believe nobody can predict.

What I can say about this 'economist' though is that he does not know what money is, he does not know what currency is, he does not know what gives money or currency value and he is wrong about money being a 'tool of the state', that's a completely nonsensical statement. Money existed long before any states existed and it will exist long after any one of those states is gone.

Re:Nope (2)

Héctor Cirbián (3437515) | about 8 months ago | (#45549353)

For me, bitcoins are to banks what GNU/Linux is to Microsoft & co. Here is where I see bitcoins big value. Of course, it can crash, but its a very interesting idea/technology.

thanks (-1)

Anonymous Coward | about 8 months ago | (#45548925)

thank you
http://www.vshacker.com/

Economist (2, Interesting)

Anonymous Coward | about 8 months ago | (#45548949)

An economists view on this issue means about as much to me as an astrologist's. The whole subject of economy is a joke.

Re:Economist (3, Funny)

gsslay (807818) | about 8 months ago | (#45549181)

Absolutely. The compex nature of money should be left to people who know more about it than economists.

Like... err...

Maybe Astrologists aren't such a bad idea...

Explain "Private" (1, Interesting)

Anonymous Coward | about 8 months ago | (#45548953)

Money has never been a tool of the state, except for collecting taxations and using it for the people. It is their tool and the people's tool but never was "the government owns the tool".

Just as gold and silver standards which was always "privitized" and was never a "tool" that was "centrally owned" by one figure.

Re:Explain "Private" (2)

xate (784379) | about 8 months ago | (#45549001)

Just as gold and silver standards which was always "privitized" and was never a "tool" that was "centrally owned" by one figure.

I'm pretty sure that there is an argument that gold and silver, as far as macroeconomics is concerned, has been "public" and centrally controlled for a long time.

Re:Explain "Private" (2, Interesting)

bondsbw (888959) | about 8 months ago | (#45549055)

After all, no bank or bitcoin-emitter can be as public-minded as a government, and no private power can raise taxes or pass laws to unwind monetary excesses.

Well, except of course the Federal Reserve.

Re:Explain "Private" (4, Informative)

DeathToBill (601486) | about 8 months ago | (#45549071)

This is utter crap. With very, very few exceptions, money has always been issued by government. Governments have always imposed currency by requiring that taxes are paid in using it. Governments have always set standards for the production of money. Governments have always punished those who attempt to interfere with money.

Gold and silver standards were exactly a system of money imposed by governments, effectively legislating the price of the underlying metal. Such standards caused problems exactly because it was a government attempting to impose money at a fixed price to a commodity where the market (ie the people) tried to push to a different price for that commodity.

I guess you're thinking of 19th century banknotes, issued by private banks, but they are not money as such, just a promissory note which the bank would exchange for a fixed number of coins which were the state-imposed money. Once they became government-backed legal tender they were subsumed into the existing money system (although you might argue that eg UK bank notes are still only promissory notes redeemable for coins, at least in theory). They were never an independent, floating-exchange currency like bitcoin is.

Re:Explain "Private" (3, Insightful)

jbmartin6 (1232050) | about 8 months ago | (#45549209)

There is a bit of a tautology here. If a government issues it, it is defined as "money" if some other entity issues it, it is a "coupon" or whatever. What TFA misses, I think, is that anything can be used as a basis of exchange. I can buy and sell things by denominating the exchange in widgets, well there you go. If I later convert the widgets to US dollars, well that's no difference. May as well say 'world of warcraft gold' for widgets, or whatever you like, in that example. It is an excellent point that since government require protection money to be paid in their own preferred currency, there is a huge advantage in terms of acceptance in the marketplace. This does not mean, however, that other mediums of exchange cannot exist. My main point is that the word "money" is an arbitrary one unless one includes 'issued by governments for payment of protection money' in the definition. Otherwise, me trading babysitting stints with my neighbors also counts as money.

Re:Explain "Private" (2, Interesting)

triclipse (702209) | about 8 months ago | (#45549213)

US Dollars aren't "issued by government." The US monetary supply is completely in control by a private banking system called the Federal Reserve System.

Gold and silver standards were exactly a system of money imposed by governments, effectively legislating the price of the underlying metal.

Gold and silver standards pre-existed state control of money. Attempts to legislate the price of metal always failed because the state could never resist the temptation to inflate the currency base, making the price of the metal unsupportably low.

I guess you're thinking of 19th century banknotes, issued by private banks

Not the 19th century. This century starting in 1913. That's what we (in the US) have now: a private bank issuing private banknotes.

Re:Explain "Private" (2)

jonbryce (703250) | about 8 months ago | (#45549215)

There are 4 countries[1] in the world where private banks still issue banknotes - Scotland, Northern Ireland, Hong Kong and Macau. But only government approved banks have a licence to print money, and they are required to deposit funds with the central bank to cover the notes they have issued.

[1] None of them are independent countries, and only Scotland is technically a country, but they all have their own parliaments and legal systems.

Re:Explain "Private" (2)

magic maverick (2615475) | about 8 months ago | (#45549299)

What is money if not basically a promissory device? I promise to give you a certain amount of goods and services.

Moreover, different bank notes were worth different amounts. You might have a bank note from The Bank of Here with $5 on it, a bank note from The Bank of There with $5 on it, and a note from The Bank of Nowhere with $5. But, actually, a shopkeeper might not trust the Bank of Nowhere, and think that the Bank of There is too far away, and so will only provide $3 and $4 worth of goods respectively for the two $5 notes. So, three Bank of Here $5 notes might be worth 5 Bank of Nowhere $5 notes, and four Bank of Here $5 for five Bank of There notes.

Re:Explain "Private" (2)

nospam007 (722110) | about 8 months ago | (#45549345)

"I guess you're thinking of 19th century banknotes, issued by private banks, but they are not money as such, just a promissory note which the bank would exchange for a fixed number of coins which were the state-imposed money."

The Ithaca HOUR is a local currency used in Ithaca, New York and is the oldest and largest local currency system in the United States that is still operating.
http://en.wikipedia.org/wiki/Ithaca_Hours [wikipedia.org]

BerkShares is a local currency that circulates in The Berkshires region of Massachusetts. It was launched on September 29, 2006[1] by BerkShares Inc., with research and development assistance from the New Economics Institute.
http://en.wikipedia.org/wiki/BerkShares [wikipedia.org]

Tulips (5, Interesting)

Anonymous Coward | about 8 months ago | (#45548959)

We've played this game before.

I look forward to the first Bitcoin Panic, it should be interesting to see what happens...

Re:Tulips (1)

TeknoHog (164938) | about 8 months ago | (#45549297)

I look forward to the first Bitcoin Panic, it should be interesting to see what happens...

People will invest in tulip bulbs again, because they are great for sending money online?

Re:Tulips (0)

Anonymous Coward | about 8 months ago | (#45549357)

It DOES sounds absurd DOESN'T IT

Deflation instead of inflation (0)

Anonymous Coward | about 8 months ago | (#45548961)

I think Bitcoin is the future. Finally we have deflation instead of inflation. Economists are always afraid of deflation because it will cause people to massively stock up their money. But most people don't behave according to what is most wise according to economic law, if they have plenty of money, thell spend it, to hell with the future.

Surely the value will drop and stabilize as governments require insight into transactions and that you pay taxes over Bitcoins earned, not a problem.

Re:Deflation instead of inflation (1)

O('_')O_Bush (1162487) | about 8 months ago | (#45549099)

I'm not sure why you think inflation is a bad thing. As long as interest/investments pay out at a rate higher than inflation, you are okay. And, if entitlements are not indexed to inflation, it is a way of making them work over time.

Hyperinflation is a bad thing (money made yesterday is worthless compared to today), but normal inflation is quite a good thing.

Deflation is an entirely different beast, and discourages economic growth in favor of frugality and saving. Those two things don't make the economy run.

Re:Deflation instead of inflation (1)

khallow (566160) | about 8 months ago | (#45549165)

As long as interest/investments pay out at a rate higher than inflation

There we go.

Deflation is an entirely different beast, and discourages economic growth in favor of frugality and saving. Those two things don't make the economy run.

Because those two things are irrelevant to making an economy run. An economy will run whether the money it uses (or as the case may be, doesn't use) is inflationary or deflationary. It runs whether the population saves more or less.

Re:Deflation instead of inflation (1)

mark-t (151149) | about 8 months ago | (#45549157)

How can any limited resource be "the future"?

Re:Deflation instead of inflation (2)

Blakkandekka (924328) | about 8 months ago | (#45549161)

Are you sure? BitCoin is a finite reserve of cash and, as the Welsh chap's story confirms, will be regularly lost down the back of the digital sofa as we go forward. The energy costs associated with mining the outlying end of the blockchain are also going up. What's the estimate of when we hit peak BitCoin, in terms of the number in circulation?

Re:Deflation instead of inflation (0)

Anonymous Coward | about 8 months ago | (#45549189)

I think bitcoin is done.

Deflation is bad. Deflation means that something you buy as an investment, where you take out a loan, means you could wind up owing more than the debt over time, and you can't get out from under it. This is exactly why governments print money, because they take out larger and larger loans, and erode that debt away over time with inflation.

Essentially what will happen is that people who invested early in bitcoin will just sell their initial investment , causing a massive devaluation as everyone panics to sell theirs, just like any other stock or bond. This will lead to people who bought late in the game to lose their shirt.

Bitcoin appeals to speculative gamblers and criminals. Not to honest people. If you think short-selling is evil, wait till someone figures out how to short bitcoins.

This has been tried before (1)

Anonymous Coward | about 8 months ago | (#45548967)

Privately issued currency was quite normal before the 20th century. It's just that they all eventually failed or were forced out of circulation. This is one area that government can provide some stability against inflation and outright scams. But Bitcoin is no different than those other currencies, and don't think for a second the behemoth US federal government is going to allow competitors.

“A government big enough to give you everything you want is a government big enough to take from you everything you have.”

Re:This has been tried before (1)

0123456 (636235) | about 8 months ago | (#45549351)

This is one area that government can provide some stability against inflation and outright scams.

Yes, they could, in theory, in a magical fantasy world run by benevolent overlords. But, in the real world, the US dollar has lost approximately 99% of its value since the Fed was founded and no longer has any value beyond the US government's promise to tax future generations to support it.

*erior (3, Insightful)

J'raxis (248192) | about 8 months ago | (#45548969)

'Part of the interest in virtual currencies like bitcoin is that their anonymity can provide a convenient cloak for criminal activity. Part is technological â" this is a cool idea. And part is speculative â" gamblers bet that bitcoin's value will increase,' concludes Hadas. 'Truly private money is an inferior alternative to the money that comes with the backing of a political authority. After all, no bank or bitcoin-emitter can be as public-minded as a government, and no private power can raise taxes or pass laws to unwind monetary excesses.'

Everything described here is what makes bitcoin a superior form of money, not inferior.

Re:*erior (4, Insightful)

CastrTroy (595695) | about 8 months ago | (#45549035)

The only problem I have with BitCoin at the moment is that it isn't something you want to hold on to. Buy it, do your transaction immediately before the value changes. Somebody pays you in BitCoin, immediately cash out before the value goes down. With most currencies, you can put it in the bank, or under your mattress, and be reasonably sure that in a week it won't have lost half of its value. There are lots of people making sure that the value of the US dollar doesn't do that kind of stuff, because it would be terrible for the economy, to have money changing value so often.

Re:*erior (1)

compro01 (777531) | about 8 months ago | (#45549069)

The only problem I have with BitCoin at the moment is that it isn't something you want to hold on to.

I find that amusing, given that another of the criticisms about bitcoin is that they think the deflationary nature of bitcoin would result in hording.

Re:*erior (1)

O('_')O_Bush (1162487) | about 8 months ago | (#45549111)

It will once it stops being volatile. Volatile < deflationary < flat or inflationary.

They are both fair criticisms, just being deflationary is a lesser criticism compared to the current state.

Re:*erior (4, Insightful)

jonbryce (703250) | about 8 months ago | (#45549239)

If it can go from $1 to $1000 in the space of a year, it can go from $10,000 to $0 in the space of a few miliseconds.

Re:*erior (3, Insightful)

Calavar (1587721) | about 8 months ago | (#45549039)

I think you're missing the point. Numbers two and three, interest because of the technological wow-factor and interest due to speculation will fade away with time. At that point, all that will be left is interest in the anonymity that Bitcoin provides. And if governments think that this anonymity facilitates crime, they will do everything within their power to either shut Bitcoin down or take over the system, just as Hadas said.

Control (5, Insightful)

fredprado (2569351) | about 8 months ago | (#45548977)

Seems like this economist is too fond of governments to be really objective. The last quote in the summary was specially awful. No bank or financial institution will ever be able to do as much harm to a population as a bad government.

That said he has a point regarding government interests in taking virtual currencies down or controlling them. The thing is, technologies evolve, and albeit bitcoin may find its end in government interventions, sooner or later other alternatives that are even harder for governments to control will appear. It was the same with file sharing and it will be always like this. People resent control and given the means to avoid it most will.

Re:Control (4, Informative)

Calavar (1587721) | about 8 months ago | (#45549149)

No bank or financial institution will ever be able to do as much harm to a population as a bad government.

The Panic of 1857 was caused by the irresponsible printing of paper currency by private banks, and the Panic of 1837 (which in urban areas saw unemployment rates on the level of the Great Depression) was greatly exacerbated by it, so history would indicate otherwise.

Re:Control (1)

Anonymous Coward | about 8 months ago | (#45549281)

Seems like this economist is too fond of governments to be really objective

Actually, the whole article is based on the research and writings of David Graeber, who is an anarchist, opposed to any form of central government. There is a great deal of historical evidence in Graeber's book that explains why money is, and always was, inseparably connected to governments.

use btcd (0)

Anonymous Coward | about 8 months ago | (#45548979)

btcd has a much better codebase. readable. comments. lots of test coverage. and btcwallet is its own app. you can connect btcwallet to btcd remotely... even over tor...

github.com/conformal/btcd

He's right, but wrongly. (4, Insightful)

caffiend666 (598633) | about 8 months ago | (#45548985)

He's right, but in the wrong way. All currencies are doomed to fail. As long as people are willing to exchange something for something else, both have value. Most FIAT money has value because governments are willing to exchange it for taxes, so then it has value to almost everyone. When a government collapses, or people lose faith in it, it's currency becomes worthless. Seashells are no longer values as currency, but they once were. Gold/Silver have boom/bust cycles. BitCoin had value because of SilkRoad, and the silk-roaders were willing to accept it for... something. Frankly I'm surprised BitCoin still has value after SilkRoad's demise. If something significant replaces SilkRoad, BitCoin will remain valuable. Until then bitcoin's going on momentum. May crash soon, may not. Will crash eventually.

Re:He's right, but wrongly. (1)

SuricouRaven (1897204) | about 8 months ago | (#45549109)

If you're looking for famous examples of losing faith in money, there was a period in Germany where exactly that happened. And more recently, Zimbabwe. Both times involved people needing wheelbarrows full of money to buy groceries.

Re:He's right, but wrongly. (1)

Nidi62 (1525137) | about 8 months ago | (#45549211)

If you're looking for famous examples of losing faith in money, there was a period in Germany where exactly that happened.

My favorite picture regarding this (saw it in a history textbook once, have never been able to find it again), was of 2 kids playing with literally (and I mean actually literally, not figuratively) brick-sized bundles of Papiermarks like they were building blocks.

All currency is doomed to failure (0)

Anonymous Coward | about 8 months ago | (#45549163)

Since all States are doomed to failure, their currency will follow. When was the last time that Roman coins were used as legal tender?

Re:All currency is doomed to failure (1)

0123456 (636235) | about 8 months ago | (#45549375)

Since all States are doomed to failure, their currency will follow. When was the last time that Roman coins were used as legal tender?

You can't have legal tender without a government to declare it such. But I'm pretty sure there are people who'd happily accept Roman coins for payment, with a value based on their rarity and gold and silver content (which was massively debased by the government as the Empire decayed).

Re:He's right, but wrongly. (3, Insightful)

TeknoHog (164938) | about 8 months ago | (#45549341)

BitCoin had value because of SilkRoad, and the silk-roaders were willing to accept it for... something. Frankly I'm surprised BitCoin still has value after SilkRoad's demise. If something significant replaces SilkRoad, BitCoin will remain valuable. Until then bitcoin's going on momentum. May crash soon, may not. Will crash eventually.

The Silk Road bust put an end to underground drug trade, just like the Suprnova takedown put an end to copyright infringement online.

Also, there's a metric shitload of things you can legally buy with Bitcoins.

Re:He's right, but wrongly. (0)

Anonymous Coward | about 8 months ago | (#45549355)

He's right, but in the wrong way. All currencies are doomed to fail. As long as people are willing to exchange something for something else, both have value.

Isn't that exactly what he said? From TFS: "Its value is uncertain, its legal status is unclear, and it could easily become valueless if users lose faith."

Bit from M*A*S*H TV series:
Col. Blake: This desk is an antique Do you have any idea what material this is?
Radar: I dunno, it looks like oak.
Col. Blake: Nope. Oak.

He's either a total idiot or a propaganda puppet. (0)

Anonymous Coward | about 8 months ago | (#45548989)

The actual concern of any real economist is now that Bitcoin has PROVEN to be more dependable than any fiat currency in the world, that we could enter a new dark age of hoarding because it's even more deflationary than gold itself. Luckily, I think a whole new economy of distributed autonomous service-backed share trading systems will proliferate before that happens so as to dissipate much of the value tied up and stored in the BTC market cap. I predict we'll see BTC well over 10K per coin before that happens, (or, ten times it's current real world value,) though any denomination in dollars is soon to be meaningless as USD hyper-inflation is just around the corner, it seems.

Re:He's either a total idiot or a propaganda puppe (1)

mark-t (151149) | about 8 months ago | (#45549225)

...now that Bitcoin has PROVEN to be more dependable than any fiat currency in the world...

Bitcoin has proven itself of no such thing yet. It hasn't existed yet even for five years.

Wake me up when a country that uses it widely recovers from a full-on economic recession.

THEN it will have proven itself dependable.

Re:He's either a total idiot or a propaganda puppe (1)

Wootery (1087023) | about 8 months ago | (#45549293)

It hasn't existed yet even for five years.

This bears repeating. Even if BitCoin had shown remarkable stability over this period, it would still not be enough.

Secondly, BitCoin has failed dramatically to demonstrate said stability. It's shown just the opposite. [blockchain.info]

Statist gonna state (1)

triclipse (702209) | about 8 months ago | (#45548999)

Money is by no means "inevitably a tool of the state." Of course, the state always acts to seize control of the mint or printing press, but money (e.g., gold, silver) would of course exist regardless of the state.

And if money is a tool of the state, why do we allow a private banking system to issue our money?

Re:Statist gonna state (1)

BitZtream (692029) | about 8 months ago | (#45549073)

And if money is a tool of the state, why do we allow a private banking system to issue our money?

We don't, you're just too ignorant and listen to stupid media far to often to realize how it actually works.

Re:Statist gonna state (1)

triclipse (702209) | about 8 months ago | (#45549147)

You're just trolling, but we (the US and most other countries) do allow a private banking system to control and issue our currency. It's called the Federal Reserve System and it is private. See Lews v. United States,680 F.2d 1239.

I never "listen" to "stupid media" - I read.

Re:Statist gonna state (0)

Anonymous Coward | about 8 months ago | (#45549309)

true, it is private but charted and supported by the state with laws and courts and with many controls by the state. the state could cause its collapse or replacement too.

    -- rubycodez

Re:Statist gonna state (0)

Anonymous Coward | about 8 months ago | (#45549125)

Agreed. Basically what it says is money is "inevitably a tool of the state" because the state wonn't allow money that isn't under its control. That's one kind of inevitability I guess, but it's a weak one.

Re:Statist gonna state (1)

NoNonAlphaCharsHere (2201864) | about 8 months ago | (#45549197)

If money isn't a tool of the state, then why are monarch's pictures always on the currency? It's Caeser's face on the coin for a reason.

Re:Statist gonna state (1)

dkleinsc (563838) | about 8 months ago | (#45549377)

If you mean the Federal Reserve, that may be technically private, but all the people in charge of it (the board of governors) are appointed by presidents and confirmed by the Senate. If you don't like what the Federal Reserve is doing, put your blame on the people who appointed those governors and accepted those appointments, and vote accordingly.

It is true that the Fed is somewhat insulated from politics. That's because otherwise it would be very very tempting for a president to make sure that the Fed did a stupid stimulus move starting in the last few weeks of October an stopping shortly after the second week in November of the fourth year of his term.

NY Times is the mouthpiece of the CIA (0)

Anonymous Coward | about 8 months ago | (#45549005)

Sorry, but their reporting always supports the agenda of the US government. They may hide behind "liberal investigative" domestic reporting but they are government stooges and support any military industrial folly.

Re: NY Times is the mouthpiece of the CIA (1)

techneeks (1374735) | about 8 months ago | (#45549177)

It's the issue with all corporate media. They have such a large best interest in what happens in politics that they will spin whatever they need to order to make that happen.

where?! (1, Insightful)

Gravis Zero (934156) | about 8 months ago | (#45549009)

"has realised he threw out a hard drive containing 7500 bitcoins, worth £4 million at today's prices. it is now under four feet of garbage in a landfill site the size of a football pitch."

dude, i want to know where this landfill is! for £4 million, you can automate the searching process or pay idiots to do the work for you! sensitive metal detectors can sure cut down the searching process. plus, think of all the other hard drives you will find and could sell on ebay as "used". ;D

Re:where?! (2)

CastrTroy (595695) | about 8 months ago | (#45549131)

Kind of brings up a problem with Bitcoin though. If money can cease to exist due to a bad hard drive, and there is a limited amount of Bitcoin, then eventually a decent amount of it will be lost. If the average person starts using it, with their usually ability to keep things safe and backed up, it probably won't take long to disappear a significant amount of the money. The government could even destroy any Bitcoins it takes possession of through drug busts or other means, simply by deleting the wallets.

Re:where?! (1)

khallow (566160) | about 8 months ago | (#45549223)

So what is this problem? Every bitcoin the government destroys means the remaining ones get more valuable. And if for some reason the currency becomes nonviable due to this process, we can always start from scratch with new bitcoins.

Re:where?! (0)

Anonymous Coward | about 8 months ago | (#45549303)

Bitcoiner fail.

We need a list of things that are known to be wrong with bitcoin that bitcoiners simply think magically aren't a problem.

Because bitcoin encourages hoarding, only a very small fraction will ever be in circulation. Also huge caches of bitcoins will just be lost to stuff like this also decreasing circulation. This is bad news for a currency. (you do know what the word currency means right?)

Re:where?! (0)

Anonymous Coward | about 8 months ago | (#45549283)

Just like physical currency in most ways, which can and is destroyed pretty regularly--the life time of printed money is measured in years. In the end, though, the difference is that it's easier to mint more money than it is to create more Bitcoins and there's a system of replacing deteriorated money with new money. So, deflation is a big issue with Bitcoins, as you note--it's the same issue gold/silver have, btw--, but you hit upon the wrong reason. The real problem is the population is growing at a much faster rate than the gold/silver/Bitcoin supply, especially as "the population" in this case is the current users and not merely the world population. It's also one reason why fiat currency (ie, valued more than its intrinsic value) of some sort needs to exist because nothing else can protect against the externality of population growth/shrinkage. Well, I guess if you're a die-hard, you'll just believe that the problem "will take care of itself"--ie, enough people will starve to death because of a money supply shortage or will barter for food (or more likely will eventually start a revolution and kill said die-hards for their food)--, but then those people are assholes and idiots.

Re:where?! (0)

Anonymous Coward | about 8 months ago | (#45549289)

That just makes the rest of the Bitcoins more valuable. Since they are practically infinitely divisible, the value they represent can still be used as before. What the economists are concerned about is that there is no mechanism to devalue Bitcoins: Inflation is a social lubricant. Instead of telling some people that they have to take a pay cut, you can just let the value of their pay decline (through an increase in money supply) and give the other people more. With Bitcoin, you can't do that. If the value of someone's work declines relative to the work of someone else, you have to reduce the pay. You can not just give the other people more, because the amount of Bitcoins you can spend does not increase. It is worth noting though that this inability to reduce the value of the existing money supply by adding more money is very much intentional. It is meant to prevent "taxation by printing press".

Whoops (1)

Anonymous Coward | about 8 months ago | (#45549017)

the unforunate Welsh fellow who ..."has realised he threw out a hard drive containing 7500 bitcoins, worth £4 million at today's prices. it is now under four feet of garbage in a landfill site the size of a football pitch.

Maybe he should give up virtually mining for bitcoins and start literally digging for them.

blow jobs (-1)

Anonymous Coward | about 8 months ago | (#45549025)

this dude has a hard on for uncle sam. at least bitcoin produces some type of mechanism for faith in it to even exist at all. all other currency's faith is derived through "well everyone else is doing it." personally I'm waiting for the early adopters and scientists to prove it's validity empirically as I have my doubts with people saying nothing on the internet is private, and I'm also interested to see what happens to things like silk road being heavy hitters with this stuff. So far the field has been rocky with both stability and legally, but every startup is like that. Also the thing about inflation having no relation to the quantity of people using the currency is slightly dubious. but what the fuck does that matter when we're all getting pay freezed anyway.

Re:blow jobs (1)

Junta (36770) | about 8 months ago | (#45549365)

at least bitcoin produces some type of mechanism for faith in it to even exist at all

What mechanism would that be? Do you refer to the notion that because it is not a fiat currency that it must be better? There's also a fixed quantity of helium in the world, why not use that as currency? That means gold must have tracked the average cost of things pretty closely... no wait, it hasn't. Well at least gold has always gone up lately so it's predictable in the deflationary effect, well except the rather sharp decline since the beginning of 2012. Or do you think that because it has the potential for anonymity roughly equivalent to cash that it has value? The two problems there are that, in practice, people would rather have a very clear claim to ownership than anonymity, and the transactions are actually more traceable than most cash transactions.

all other currency's faith is derived through "well everyone else is doing it."

I hate to break it to you, but that's true of *EVERY* currency that has ever existed, bitcoin included. Ever since growing beyond the feasibility of straight barter systems, our economies have relied on consensus agreement upon an arbitrary assignment of value to some 'thing', whether it be gold, silver, bitcoin or some made up but explicitly managed thing backed by a stable organization like most modern currencies in the developed world.. If walmart started accepting bitcoins exclusively, then bitcoins 'value' would increase, that's precisely because 'everyone else is doing' is the *singular* important thing in any 'currency'. If 90% of the people willing to accept bitcoin as 'payment' lost their faith, it would crash (and in fact enter a death spiral landing in zero).

Public minded government? (0)

z4ce (67861) | about 8 months ago | (#45549053)

"no bank or bitcoin-emitter can be as public-minded as a government"?? Hahaha.. is that a joke? The government is hardly "public-minded." The government is just self-interested as any other entity plus they have a monopoly on violent force..

Ignorance (0)

BitZtream (692029) | about 8 months ago | (#45549057)

Could be there's something good about money that can't be manipulated by law.

Yea, except, there is no such currency in existence and never will be. I don't think you really understand how the world works. If you think BitCoin is a good idea, I KNOW you don't understand how the world works, but I would love to sell you a few things at a really cheap rate. Come on, don't let everyone else take advantage of you and leave me out just cause I'm honest about stealing your money.

Oh what nonsense (0)

Anonymous Coward | about 8 months ago | (#45549063)

Yes, Bitcoin will probably undergo a dramatic failure at some point, but government-backed currencies also fail, usually due to terrible management by the government.

The only difference is that when a national currency fails, it is usually due to the stupidity (or just plain callousness) of a handful of powerful people, whereas when Bitcoin fails, it will be due to the collective stupidity of large numbers of people.

Re:Oh what nonsense (1)

Junta (36770) | about 8 months ago | (#45549253)

it will be due to the collective stupidity of large numbers of people.

That is of course a very very likely thing. I think the first world nations are where they are because they strike the right balance. Not *too* few people in a position to completely change things, but not so many that it devolves to chaos.

Even if he is right... (-1)

Anonymous Coward | about 8 months ago | (#45549085)

there's still a lot of money to be made before the bitcoin bubble bursts.

You can get free bitcoins every hour at http://freebitco.in/?r=12142 - no strings attached, just a single click and captcha verification. Don't have a bitcoin wallet? Get one at https://blockchain.info/wallet

someone needs a history lesson (1)

stenvar (2789879) | about 8 months ago | (#45549097)

"Economist Edward Hadas writes in the NYT that developers of bitcoin are trying to show that money can be successfully privatized but money that is not issued by governments is always doomed to failure because money is inevitably a tool of the state.

Centuries of history tell us differently, because throughout much of history, "money" was either stuff that was intrinsically valuable to people, or it was slips of paper referring to actual, valuable stuff stashed away in private vaults. In fact, it is governments that usually deprive money of value for the purpose of financing wars and welfare.

Besides, if bitcoin ever really started to take off, governments would either ban it or take over the system says Hadas

Mostly what that says is that Hadas already views governments as entities separate from the people and has given up on democracy and reason. I still think that in the long term, the people tend to make good decisions and vote in representatives that do the right thing.

Besides, people can come up with new ways of doing things faster than governments can catch up with laws and enforcement to try to stop them. And when governments get too pushy, the people just ignore them, as they do when it comes to drugs, and taxes in much of the world.

Tax (4, Insightful)

michaelmalak (91262) | about 8 months ago | (#45549101)

I'm just waiting for the first tax audits of BitCoin users who get dinged for not having paid capital gains tax. I give it a few years.

Is he confusing bitcoin and cash? (3, Interesting)

foobar bazbot (3352433) | about 8 months ago | (#45549103)

'Bitcoin exemplifies some of the problems of private money,' says Hadas. 'Its value is uncertain, its legal status is unclear, and it could easily become valueless if users lose faith.

Cash's value is uncertain, its legal status is ... well, not unclear, but situationally dependent in a pretty bad way[1], and like anything, it becomes valueless if nobody wants it.

1. In the US, at least, while it's legal to use arbitrarily large amounts of cash in any legal transaction, it's not legal to use it for drug deals, money laundering, etc.. Sounds reasonable so far, but there's a whole boatload of policy and precedent to the effect that having large amounts of cash constitutes evidence that you were using it for drug deals, money laundering, etc., which combined with civil forfeiture, means that having large amounts of cash permits the state to seize that cash, unless you can prove that you were doing something good with it. Short of being an employee of a bank, vending machine company, etc., that's pretty hard.

Puzzled (0)

K. S. Kyosuke (729550) | about 8 months ago | (#45549117)

"it could easily become valueless if users lose faith"

Was "it" referring to US dollars, or was "users" referring to Christians?

He states some risks well... (1)

Zelig (73519) | about 8 months ago | (#45549119)

Hadas most trenchant point is that governments will oppose Bitcoin if it becomes successful. He's correct, and his analysis is isomorphic with "The neighborhood thugs will rough you up if you conduct business without paying them protection".

This is an important concern; but not a reason to stop.

It still a fiat currency (0)

Anonymous Coward | about 8 months ago | (#45549129)

Because of that, it's destined to fail. No different from the dollar or euro.

Is it still a fiat currency ? No. (2)

advid.net (595837) | about 8 months ago | (#45549195)

Due to its mathematical design, bitcoins are similar to a comodity [theatlantic.com] , not a fiat currency.

Somali Shilling (1)

Anonymous Coward | about 8 months ago | (#45549187)

The economist (http://www.economist.com/node/21551492) had an interesting article a while back on the Somali Shilling. here is a currency that is not backed by a government (the government does not exist) but has held its value remarkably well. This goes to show that government backing is not totally necessary for a currency to thrive.

Missing the point (2)

gman003 (1693318) | about 8 months ago | (#45549199)

The selling feature of Bitcoin is that it is not backed, nor traceable by, governments. That's the main drive behind this boom - very little trust remains in the US government, or in many others. That covers the Silk Road-type drug-trade users - they have a very good reason not to trust the currency of a government that has declared war on them. That covers the technological side - tech-savvy people tend to be much less trusting of any government, and we in particular were betrayed by their widespread monitoring. And it even covers the investment bubble - the marketplace wants US monitoring of damn near everything to stop, and anything that steps in to fill that need will find a ready consumer base and investor backing. Those are the three groups *he* identifies as behind the Bitcoin boom, and each one is motivated, directly or indirectly, by a fear and hatred for the American government (note that it's specifically the government, not the American people, that are the target here).

Bitcoin will die as soon as we can get similar guarantees of security for official, government-backed currencies and banking systems. Oh, and not just from America - a currency that is secure not just from the issuing country, but all others.

Yeah, even if Bitcoin dies (I can see a big enough crash destroying the brand, and any currency is only as strong as the collective desire to use it), something else will come up to replace it.

Hard to reach consensus without central control (1)

Junta (36770) | about 8 months ago | (#45549221)

Even with the relatively still small subset of the population that is participating in it, they have made BitCoin untenable as a currency. It's simply too volatile. Over the last few hours, the 'value' has increased by 20%. Now that *sounds* to BitCoin advocates like awesome news, but it means I can't negotiate an annual salary or a reasonably establish terms for a loan or really much of any sort of long term planning.

While people may rail against a central bank manipulating a currency, the aggregate behavior of any fixed currency without some regulatory hand has been too volatile for day to day use. People complain that the QE is going to, bound to lead to hyperinflation, but thus far that has not happened but we have seen hyper-deflation in terms of BitCoin overall and a lot of extreme booms and busts along the way. People are right to worry about QE going to far, but jumping on the gold or bitcoin bandwagon is betting on systems that have objectively demonstrated in practice worse behaviors than what has been observed in the central banks.

Wales (1)

Philip Mather (2889417) | about 8 months ago | (#45549265)

"it is now under four feet of garbage in a landfill site"

For anyone considering the idea of trawling through the landfill site the four foot of garbage isn't really the problem, it's that the description doesn't even narrow it down to anywhere in Wales specifically.

FED is a private entity, not government's (0)

Anonymous Coward | about 8 months ago | (#45549269)

FED and ECB are private entities owned by private member banks. Government has no authority, but tax you.. for example, they need to borrow the money they want to issue from FED.

All money is based on the belief of its usefulness in future transactions.
Different thou, if someone threathens you with a mortgage agreement and losing of your home..
suddenly the will to find more officially sanctified money is of great interest.

Funny, you don't *look* like Uncle Sam's intern... (2)

pla (258480) | about 8 months ago | (#45549271)

they might act out of self-preservation because tax evasion would be too easy in a parallel economy [...] no private power can raise taxes or pass laws to unwind monetary excesses.

Way to miss the point, Ed.

The governments of the world have proven themselves much too irresponsible to manage fiscal policy. We-the-Fuckin'-People have, therefore, decided to take that power back from the government.

When a government can't keep its own spending in check, "raise taxes" does not count as a valid response, whether or not they have that power by virtue of having the biggest guns. The interests of the world's governments have drifted so far away from "public-minded" as to make your entire suggestion laughable. No, we obviously can't trust most private entities to act in our best interests - But I could name literally a hundred that do a hell of a lot better job than any world government.

The federal reserve and the ECB need to cease to exist, ASAP. No more of this "implicit taxation through inflation" crap - If governments can't play on the same monetary field as the rest of us, they need to go away and have something better able to live within its means replace them.

In other news (0)

Anonymous Coward | about 8 months ago | (#45549277)

In other news, overnight bitcoin just went up another 10%.

Follow the money... (0)

Anonymous Coward | about 8 months ago | (#45549317)

A completely unbiased view has been presented. (Hint: Economists work with and for governments.)

As for following the money.. good luck with Bitcoin et al :-)

Translation: (2)

Ralph Spoilsport (673134) | about 8 months ago | (#45549331)

" 'Truly private money is an inferior alternative to the money that comes with the backing of a political authority. "

in other words, state sanctioned VIOLENCE.

FTFY

US (and some other) history to the contrary? (0)

Anonymous Coward | about 8 months ago | (#45549363)

Mr. Hadas seems not to know at least US history too well. Non-USG money worked widely for a long time. So has money from other places where coins were used outside their national areas. The coins had value of course. Fiat money (greenbacks, Continentals, etc.) "works" where there is a state with power to impose a currency, and not otherwise, but government power ultimately doesn't work too well. Black markets and alternatives are too easy.
    On the whole, though, what has worked long term has been something of value used as a currency, or backing it. Use of something hard to make but
without other source of value than its existence as a curiosity means it gets closer to usability than, say, Hula Hoops as a currency, but there's not much
to say that the world might tire of Bitcoin and say "feh. So what?" and refuse to accept these numbers as having any value at all.

In principle a dollar is backed by part of the US GDP. As long as that habit of thought continues, it'll have value. At some point though if US debt gets big enough people might well ask what value pieces of paper have and conclude the same thing. Then, state power or no, the currency becomes useless. It's happened before.

Translation: Can't make money yet (4, Insightful)

tlhIngan (30335) | about 8 months ago | (#45549369)

Bitcoin is just alternative currency. There are plenty of that around - most of them are pegged to some other currency though, but they are, for the most part alternative currency.

Think: Gift Cards (Amazon/Apple/Steam/Google/etc), alternative store currency (Canadian Tire Money), etc. Then there's non-traditional currency, like WoW Gold.

If anyone says Bitcoin isn't a "money" they're plain old lying. It can be used to facilitate trade (which is the purpose of currency).

Of course, there are a few fundamental problems with Bitcoin, but there are problems with all currencies.

When any economist, banker, etc., says Bitcoin is doomed, the real reason is them saying is "we haven't figured out a way to make money on it yet". No currency is invulnerable to making money by doing things of little value, Bitcoin included. It just means the quants haven't sat down to figure out schemes to exploit to get bitcoins for little effort. Either it's because the entire bitcoin market is too small so the benefits of skimming 1/1,000,000th of a Bitcoin from every transaction is barely worth the effort, or other reason.

That's the real message.

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