I am actually fine with the pyramiddy element as long people are aware that the increase in BTC value in USD is liable to slow or reverse suddenly.
If that were the case, then the only people who would stick with bitcoins are either a) scammers intending to cheat other people and take advantage of the greater fool theory, or b) people looking to buy child pornography or illegal drugs, where the financial risks of losing money are far outweighed by the legal risk of heading to a PMITA prison.
I am actually fine with the pyramiddy element as long people are aware that the increase in BTC value in USD is liable to slow or reverse suddenly.
If that were the case, then the only people who would stick with bitcoins are either a) scammers intending to cheat other people and take advantage of the greater fool theory, or b) people looking to buy child pornography or illegal drugs, where the financial risks of losing money are far outweighed by the legal risk of heading to a PMITA prison.
so... exactly what is happening now?
The only thing missing from that list is c) Really gullible people who think it will make them rich.
I am actually fine with the pyramiddy element as long people are aware that the increase in BTC value in USD is liable to slow or reverse suddenly.
If that were the case, then the only people who would stick with bitcoins are either a) scammers intending to cheat other people and take advantage of the greater fool theory, or b) people looking to buy child pornography or illegal drugs, where the financial risks of losing money are far outweighed by the legal risk of heading to a PMITA prison.
so... exactly what is happening now?
Well, right now, you have a group of people who genuinely believe in the idea of "something for nothing" and "everyone can get rich" because they have no concept of exponential growth. Ronya's scenario that everyone s educated on how pyramid schemes actually work before going into it.
There has been no official confirmation on who it is yet, but if you head over to BTCGuild and check on their Hall Of Fame page you will see a user, called 67117 that is mining at a ground breaking 800 to 900 GH/s (or 800,000,000,000 to 900,000,000,000 Hash’s per second, or .8 to .9 TH/s if you prefer).
This represents nearly one fifth of BTCGuild current hashing capacity and nearly one twentieth of the total capacity of the bitcoin network
A single user is not accounting for 5% of the entire bitcoin mining economy.
If the government wanted to shut down bitcoin, they wouldn't even need to pass a law. They just run their NSA computers for a few hours and mine the entire economy dry.
Heck, they could mine the bitcoin economy for a few weeks to reset the difficulty level, then leave immediately, grinding bitcoin mining to a halt.
I really don't know much about bitcoins, but the idea of currency based on cryptography is brilliant, and I hope to see more of it. Bitcoin may be a scam, but the US dollar is looking more and more like a scam everyday.
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It's amazing how all the people who say that the US dollar is a scam are eagerly encouraging you to purchase their products for US dollars.
Including the bitcoin itself, where the goal is to either sell off the bitcoins for USD immediately and avoid the risk of the bitcoin dropping in value, or hold onto the bitcoin as an investment so you can sell it for US dollars later on. You can't label yourself as an alternative to US currency if your proposed solution is always one step away from US currency.
And heck, at least Goldline can claim that their product would be theoretically useful in an apocalypse if all the computers and the electricity shuts down. What happens with the bitcoin?
I know the OP was being facetious, but its true the fed can and does just print off more and more money to try and inflate their problems away, while purchasing their own bonds by the billion. It makes a tiny minority disgustingly rich, while everyone else gets more expensive goods and the occasional economic meltdown. Sounds a lot like a pyramid scheme to me.
Oh, it's the Ron Paul argument, "Rich people get money first, so they're advantaged because they can spend it before inflation has a chance to kick in, which is how the wealth inequality gap is caused by the Federal Reserve!" Which ignores two things. 1) Rich people are not spending their money. They're hoarding it. 2) Inflation is constant, and applies just as much to the rich person. The advantage of the rich person is that he has more money period, not because of anything related to inflation.
I'm not familiar with Goldline, nor am I familiar with what Ron Paul has to say, so I can't comment too much on that. I'm certainly not supporting any idea of the bitcoin as an alternative to the USD.
I should clarify my point about the USD being a bit of a scam though. I didn't mean to imply that wealth inequality is caused by inflation, though I wasn't really clear with what I said.
The fed is trying to inflate away its problems, and they're buying their own debt. I view these as problems, most especially the last one. There are a variety of other problems with the US financial system as well, namely how much large financial institutions end up being favoured by way of being "too big to fail" despite questionable or openly fraudulent behaviour, all at the expense of the taxpayer. I think this and the system which supports them contributes hugely to wealth inequality. If you own a bank that is considered "too big to fail" then obviously that is very good for you. Indeed, it encourages that banker to do everything in his power to keep his bank in that category. Behaviour that gets bailouts winds up being encouraged, even if it is legally or ethically questionable. There is no easy solution to this, especially because the financial sector is so critical to the US economy in general.
I think the USD is a bit of a scam because its value is kept high because of its status as a reserve currency, rather than any intrinsic value it holds. I feel the US economy is on fundamentally extremely shaky ground. Its obviously taken a bunch of hits in the last several years, but these hits were mitigated (well, not so much for the average citizen perhaps) by large scale bailouts. I don't think there has been nearly enough change in the system since 08, nor healthy growth of the economy, to maintain the value of the US dollar where it is. I think a repeat of 2008 on a smaller or larger scale is very likely because of this,
and I think the dollar's value could drop by a large amount quite suddenly in a "correction" that would likely be very damaging, hence all the effort put in to avoid it. Still, I have a hard time believing that any entity can loan money to itself in perpetuity, and I think some of these measures may end up making things worse in the long run as this correction is just kicked into the future. I think the US dollar is a bit of a scam because its value is supported... uh, politically might be the right term, and I think this will not last.
The fed is trying to inflate away its problems, and they're buying their own debt. I view these as problems, most especially the last one. There are a variety of other problems with the US financial system as well, namely how much large financial institutions end up being favoured by way of being "too big to fail" despite questionable or openly fraudulent behaviour, all at the expense of the taxpayer. I think this and the system which supports them contributes hugely to wealth inequality. If you own a bank that is considered "too big to fail" then obviously that is very good for you. Indeed, it encourages that banker to do everything in his power to keep his bank in that category. Behaviour that gets bailouts winds up being encouraged, even if it is legally or ethically questionable. There is no easy solution to this, especially because the financial sector is so critical to the US economy in general.
The problem of banks being too "big to fail" has nothing to do with the US Dollar, and everything to do with how the banks are regulated.
If you allow the George Bailey banks to become the Gordon Gekko banks, then they become "too big" because of the Gecko aspect and "can't fail" because of the Bailey aspect. The solution is to prevent banks from being both.
I think the USD is a bit of a scam because its value is kept high because of its status as a reserve currency, rather than any intrinsic value it holds. I feel the US economy is on fundamentally extremely shaky ground.
The US Dollar is backed by US law. It's against the law to refuse them as payment on debt. And keep in mind that "debt" applies to everything, from utility bills to student loans to eating out at restaurants. You can't escape the concept of debt in a modern economy, which means you can't escape the inherent utility value of the US dollar.
That's a lot more valuable to me than gold or bitcoins. I can have a brick of gold, that doesn't mean the vendor has to accept it. Especially since the vendor can (rightfully) suspect that I'm trying to scam him somehow. You can make gold bars filled with tungsten to fool a density test, which means that the only way to test the legitimacy is to cut them in half. With bitcoins, there is literally nothing at all to back up the value, because bitcoins are a total scam.
Its obviously taken a bunch of hits in the last several years, but these hits were mitigated (well, not so much for the average citizen perhaps) by large scale bailouts. I don't think there has been nearly enough change in the system since 08, nor healthy growth of the economy, to maintain the value of the US dollar where it is. I think a repeat of 2008 on a smaller or larger scale is very likely because of this, and I think the dollar's value could drop by a large amount quite suddenly in a "correction" that would likely be very damaging, hence all the effort put in to avoid it.
Based on what? What do you think is the underlying problem in the current economy that the Federal Reserve is unable to address?
Still, I have a hard time believing that any entity can loan money to itself in perpetuity, and I think some of these measures may end up making things worse in the long run as this correction is just kicked into the future. I think the US dollar is a bit of a scam because its value is supported... uh, politically might be the right term, and I think this will not last.
All money is essentially the promise that you will get something in the future. Ergo, all money is essentially a form of debt or an IOU that gets passed from one person to the next.
Gold and bitcoins are not a promise of anything. All it represents is, "At some point, a guy dug a hole and then hid the contents of that hole in a vault" or "at some point, some guy with a gaming rig produced a mathematical hash." But it doesn't mean anything. Unless you're interested in gold for it's dental or electrical properties, it's not really redeemable for anything."
The only "promise" that gold or bitcoins offer is the assumption that you can sell it for more US dollars later on. Which is a) a case of greater fool theory, and b) demonstrates that you are still dependent on the US dollar.
happily, if the US dollar suddenly drops in value, the Fed can destroy a lot of dollars in a hurry. By selling all those Treasuries. That they have been buying up.
I know the "too big to fail" bit isn't directly related to the dollar. My original post kinda combined the issues, in my second one I separated the two thoughts into their own paragraphs. They're related in that they're both a part of the greater US economy, but I know one is not directly influencing another.
The underlying problems in the US economy are, amongst other things, just a lack of growth. Manufacturing has largely left for Asia, creating some interesting trade imbalances. A weakening US economy can actually lead some manufacturing back, but that will take quite a lot of time. So much of the "growth" of the US economy over the past 10 or more years was illusory; banks selling useless debt to each other. For a while its a boom, everyone is buying cars and houses and electronics because credit is so cheap. Then things blow up and everyone realizes that they actually don't have much money at all. This is still going on; attempts at economic stimulus are all well and good, but consumers are already so far in debt that they will again reach a breaking point. More manufacturing isn't the only solution to this, but I do feel that the US as a country is living above its means, and borrowing more money might not work out in the long run.
I'm not concerned about anyone not accepting US dollars. Its the most widely used currency in the world, and it will take some time for that to change, even if the dollar does depreciate. Its that depreciation that I was talking about though; I personally don't want to hold on to a pile of US dollars because I simply don't trust it to retain its value in the long term.
I'm aware that currency is in fact debt. I'm not saying that bitcoins or gold or anything else is more desirable. I'm not suggesting any solutions globally or for me personally; got knows I'm not buying bitcoins, and gold is near historic highs so I don't think I'll be buying that either. I just feel that a great deal of the wealth possessed by the US doesn't really exist. That the bubble is not fully popped, and is growing again. That is why I feel the USD is a bit of a scam; the dollar and the economy in general is not as strong as is claimed.
**shrug** but who knows, and it could take many years before and of my supposed "corrections" take place, if they ever do. These are just my opinions, I'm not claiming any authority here or even trying to change anyone's mind. Just saying why I don't want to hold a lot of dollars, and why alternative currencies appeal to me.
I personally don't want to hold on to a pile of US dollars because I simply don't trust it to retain its value in the long term.
You are not alone in that view - there have been some Very Serious People (tm Krugman) who have been saying that a second bubble bursting is just around the corner, and we're a footstep away from massive currency depreciation.
However, these VSP have been saying this for years - and so far inflation has been at an incredible low and people have been clamouring to give the US money.
So... Ronya could do a better job of this, but some basic economic theory:
"Value" as a nominal concept is always being created. All the way back to agrarian societies, the general long term trend was that crops yields would increase, herd sizes would increase etc. Today we churn out an increasing supply of cars, we develop new games and movies, and we find better ways to give more people more information. Now, if you have a scarcity-controlled money (say, Bitcoins) as Ronya mentioned what tends to happen is you get deflation - that is, the increase of "valuable things to buy" outpaces the money. So where 5 years ago 1 bitcoin will have got you a sack of apples, today the supply of apples has increased so much through innovation etc. that the orchard farmer is practically giving away 5 sacks of apples per bitcoin.
"Wow" says the Farmer, "The bitcoin buys so much more these days! I should just quit farming and stock up on bitcoins instead!" And so people stop spending and start hoarding instead - suddenly the economy takes a huge whack as people stop producing, because it's so much easier just to sit there with money. So a nominal level of inflation is generally desirable - people produce stuff, you want people buying stuff instead of holding on to their pile of dollars. Or bitcoins. Or whatever.
Getting back to current echognomics, GDP can loosely be defined as "Amount of Money in Circulation x How Fast it is Circulating". So if I go out and buy an apple from you for $1, that's $1 for GDP. If 5 minutes later you use that $1 to buy a can of coke, that same dollar has now contributed $2 to GDP. This is baby steps, but stay with me here. Now, if we get some action that causes people to hold on to their money, then the economy begins to falter (often typified by the Babysitting Co-op) - the "circulation" part of the equation slows down. The Fed's role in this is to buy bonds (i.e. issue cash) to increase the money in circulation to stimulate the economy - that's basic monetary policy (and how the Fed essentially controls interest rates).
Now, what happens if the circulation goes back up? Oh noes! There's too much money in the economy, inflation knocks on our door! Investors flee the country! The Fed's most important mandate is to control inflation - it says "Who wants to buy some US dollar bonds?" and happily takes the money out of circulation again. Currently we're seeing a huge demand for US bonds, to the point where investors were willing to pay below real inflation for them (i.e. the equivalent of saying "You can borrow 100, but pay me back 99 at the end of the year"). Bond vigilantes (people who distrust government bonds and cause a run) have yet to be seen, and inflation remains low.
Does this mean that another bubble and/or recession wont happen? No - noone can predict with that level of certainty. But it does mean that the risk of the economy going pear-shaped in the near future is pretty low - we don't want you holding on to your pile of US dollars, so if you save (and earn interest, allowing the bank to lend on your behalf) or invest (increasing production) then this is Working As Intended (tm).
Interesting, I didn't know about the role of circulation; it makes sense though now that I see it.
Question though:
You say the Fed buys bonds in order to circulate more cash in the economy as a means of combating deflation. Ok, I guess I can see that. Once inflation picks up and it needs to be reigned in, the Fed sells the bonds to investors or other banks- removing the money from circulation to slow things down. That also sounds about right.
But if demand for bonds is currently very high, why is the fed still buying its own bonds? Don't these forces work against each other?
And I thought the interest rate was controlled by setting the prime lending rate between banks, as opposed to buying its own debt? This is a side issue and I'm not asking for any sort of detailed explanation, a quick explanation if you know would be handy though.
The interbank rate is (and has been) as low as they can set it for a while. They're adjusting long term interest rates (which are influenced by the overnight rate but that lever is already played out) by buying their debt so that investors have to look elsewhere for long term investments. This increases the amount of buyers in the long term investment market and drives down the interest rates.
the Federal Reserve can buy any dang thing it wants, subject to its mandate, but for that it wants safe assets (it will want to discard those assets later, so the assets have to retain value. Return is less of a concern). Treasuries are very safe. So it winds up with a lot of Treasuries. It also owns a ton of things that are not Treasuries - it owns a lot of mortgage-backed securities, for instance.
ordinarily policy is conducted via the short-term interest rate, but it is already set as low as possible, so instead they are dispensing cash via hoovering up non-cash assets.
But if demand for bonds is currently very high, why is the fed still buying its own bonds? Don't these forces work against each other?
The Fed doesn't sell bonds. The Fed is not a part of the federal government, they just buy government debt because it is awesome to have. The Fed is basically just the biggest private player in the game, except that their goal is to keep shit stable rather than make monies.
Ya, I did some stupid conflating to confuse the fed and treasury as I was hurrying out the door - came back to edit it and found others had beat me to it, so I'll let my ignominy stand.
The Treasury issues bonds, the Fed trades them based on monetary policy. The interbank interest rate essentially controls the flow between the reserve bank (Fed) and the commercial banks, so purchasing securities directly affects that rate.
When the interest rate is low (as it is currently) you can get a liquidity trap where monetary policy has little impact because there is nowhere lower for the interest rate to go. In this case, the reserve bank uses Quantitative Easing as well - this is buying commercial bonds rather than just trading government bonds.
The US Dollar is backed by US law. It's against the law to refuse them as payment on debt. And keep in mind that "debt" applies to everything, from utility bills to student loans to eating out at restaurants. You can't escape the concept of debt in a modern economy, which means you can't escape the inherent utility value of the US dollar.
This is so important to underline: your money is valuable because the state says it is, and will (at least in theory) back you if someone refuses to accept it to settle debt:
If you and your friends make gummi coins and have a gentleman's / gentlewoman's agreement to use them as a trading currency, that's all well and good, but the state is not going to step-in to resolve a dispute if one day Craig decides your gummi coins can no longer be used to rent space on his couch.
Bitcoin is unstable for a lot of reasons, but a big part of it lies in how attractive it looks on a given day as a vehicle for trade. That's why, as many people have already pointed-out, it's suspected that the volume of trade seen in BTC may be being artificially created by users simply flopping money from one wallet into a another wallet.
and I think once an exchange turned out to be a scam and just walked away with all the money, but I can't quite remember the details on this one.
This has happened many, many times. Bitcoin is a currency that is as fraudster friendly as you could hope to make a currency; anonymous, not state protected, not traded through banks, etc.
The largest scam (so far) was perpetrated by Bruce Wagner, a professional matchstick man who was scamming people via mortgage fraud before his Bitcoin days. This incident ties back into what @Schrodinger was saying about how fiat currency has worth - in this case, Bitcoins were being backed by a large exchange firm, and this gave investors some confidence in the currency because, hey, mybitcoin.com will act as a guarantor.
Except that the criticism people have always leveled at the libertarian ideal held true: there was no reason for anyone to set-up a selfless anonymous firm like mybitcoin.com claimed to be. The only reason you would set it up is to con naive people into trusting you with their money, which you could then simply steal without any repercussions.
This is so important to underline: your money is valuable because the state says it is, and will (at least in theory) back you if someone refuses to accept it to settle debt:
If you and your friends make gummi coins and have a gentleman's / gentlewoman's agreement to use them as a trading currency, that's all well and good, but the state is not going to step-in to resolve a dispute if one day Craig decides your gummi coins can no longer be used to rent space on his couch.
Dude, thank you, that video made my day.
One of the main problems with libertarian free market currency is that they assume that all transactions are voluntary, and therefore all currency should be voluntary too. If someone sells a car for more than I'm willing to pay, then I can refuse to pay for it, and he can keep his car. If someone refuses to sell his car for money, than I can keep my money. If we both agree that we will trade the car for gummi bears, then we can trade for gummi bears.
The problem is that there are some transactions that can't be refused. For instance, a guy who parks in the wrong space can't change that after the fact. The same applies to someone who has a speeding ticket, or someone who has to pay his taxes.
IIRC, the nature of a transaction has some bearing on whether somebody has to accept currency. For instance, a shop can, to my knowledge, reject pennies (or any other currency) in exchange for a new transaction.
But all currency is assumed to be valid for any debt already incurred, unless there was some prior agreement in place as to the nature of payment that was acceptable. So yeah, as in that case, they cannot after the fact claim that pennies aren't valid payment, that would have had to be specified before the service was rendered.
IIRC, the nature of a transaction has some bearing on whether somebody has to accept currency. For instance, a shop can, to my knowledge, reject pennies (or any other currency) in exchange for a new transaction.
But all currency is assumed to be valid for any debt already incurred, unless there was some prior agreement in place as to the nature of payment that was acceptable. So yeah, as in that case, they cannot after the fact claim that pennies aren't valid payment, that would have had to be specified before the service was rendered.
"Hey, before we tow your car, we want you to know that we don't accept payment in pennies. Is that okay?"
It's kind of amazing, if you think about it, to claim that US currency lacks intrinsic value. As if gold has intrinsic value. As if anything that exists has some sort of value entirely divorced from subjective human points of view.
IIRC, the nature of a transaction has some bearing on whether somebody has to accept currency. For instance, a shop can, to my knowledge, reject pennies (or any other currency) in exchange for a new transaction.
But all currency is assumed to be valid for any debt already incurred, unless there was some prior agreement in place as to the nature of payment that was acceptable. So yeah, as in that case, they cannot after the fact claim that pennies aren't valid payment, that would have had to be specified before the service was rendered.
Yeah, basically as I understand it they can refuse to do business with you is you want to pay in pennies or something. (just as they can refuse to do business with you for a host of legal reasons, like that they think you smell or something)
But they cannot refuse to accept legal tender as payment for a debt. So if you already owe them money, they gotta take it.
So did anyone bring up the fact that bitcoins cause permanent brain damage?
I was going to post that, but the story always seemed a bit sketchy to me (if hilarious). I mean, 4 overclocked 5850s shouldn't produce THAT much heat, right? Even assuming his bedroom isn't to code and didn't have sufficient ventilation, I have trouble believing that one of the dumb mining rig set-up would produce enough heat to give someone a stroke in the middle of the night.
If the story is real, I'd guess it had much more to do with the weather conditions than his rig.
While it may be "lul buttcoins", that isn't an issue that's specific to the bitcoin mining process. You could have exactly the same thing happen with a home cupcake business if you try to cobble together a series of baking ovens. Or setting up a meth lab. It's more "lul people turning their houses into hazardous work environments for a quick buck".
Now, if the hashes themselves drove people mad like in that movie "π" that would be another story...
The US Dollar is backed by US law. It's against the law to refuse them as payment on debt. And keep in mind that "debt" applies to everything, from utility bills to student loans to eating out at restaurants. You can't escape the concept of debt in a modern economy, which means you can't escape the inherent utility value of the US dollar.
This is so important to underline: your money is valuable because the state says it is, and will (at least in theory) back you if someone refuses to accept it to settle debt:
While it may be "lul buttcoins", that isn't an issue that's specific to the bitcoin mining process. You could have exactly the same thing happen with a home cupcake business if you try to cobble together a series of baking ovens. Or setting up a meth lab. It's more "lul people turning their houses into hazardous work environments for a quick buck".
Now, if the hashes themselves drove people mad like in that movie "π" that would be another story...
At least cupcakes and meth labs would actually give you cupcakes and meth to show for it.
The problem with bitcoins is the same problem you had with the agricultural industry in the great depression. Farmers used technology to vastly increase their output, which caused the price to crash. In response to the price crash, the farmers tried to compensate by greatly increasing their output, creating a never ending cycle. Because in the end, there's a finite number of buyers, and demand for food is mostly inelastic.
In the case of bitcoin mining, you are essentially selling your "mining effort." The problem is, the market of your bitcoin efforts is completely inelastic. Bitcoins are designed so that a certain number is produced every 10 minutes, regardless of the amount of mining effort invested. The computational power of bitcoin mining can increase by a factor of 1 million, and it won't change the number of bitcoins being created.
Here's the funny part: An awful lot of libertarians are ideologically incapable of acknowledging the lessons of the great depression, because they tend to assume that demand is always infinitely elastic, and that unemployment is the always the result of being lazy. They believe in a a perfect meritocracy, so the idea that an industry can go out of business for being too efficient is completely foreign to them.
Which means that most bitcoin enthusiasts are ideology incapable of recognizing the trap they've fallen into. They keep plugging more and more power into the problem, assuming that eventually their efforts will pay off.
Wait, so what's the point of these mining rigs then? Is it just "whoever crunches the most data gets the next coin" or something?
Sort-of. Each coin is an integer; you 'mine' coins by crunching random integers and relaying these to the Bitcoin verification server. Whenever a valid new Bitcoin integer is made, presto, you've got a coin.
But each coin is artificially made harder and harder to crunch than the last one.
I fully support replacing all cash transactions with traceable cashless transactions (more convenient, plus makes illegal activity that much harder) but bit coins aren't even close.
It makes petty, economically irrelevant poor-people illegal activity harder. White collar stuff will be just fine.
Basically, think of it like a raffle. Only instead of tickets, you have computer generated hashes. Every ten minutes, they select a hash, and the "winner" is awarded with free bitcoins. And then you start all over.
Now, there is no limit to the number of tickets you can submit. But there's also no limit to the number of tickets that other people can submit. However, there is a very hard limit on the total number of prizes.
The problem is that generating these hashes isn't free. It costs computer parts (which wear down with excessive use), and it costs electricity. So every hash you generate costs money. Which basically means that you're at a casino, competing for the jackpot at the slot machine. Which means that you can easily imagine scenarios where you spend more money gambling on bitcoins than what you can win back as potential earnings. Except with slot machines, the number of prizes awarded is proportional to the number of slots played. This is not true for bitcoins. Also, lots of people have setup mining pools, where the winnings are evenly distributed based on computing power, so you get paid at a constant rate.
Bitcoin miners will continue to scale up their operations as long as they make a profit, in order to stay competitive. If the cost of electricity goes down by half, then a lot of people will respond by doubling the size of their mining operations, because now they can afford it. That means that the cost of bitcoin mining will always be very close to the potential rewards. Here's where it gets interesting: The potential rewards of bitcoin mining is based on the projected sell rate. Which is impossible to know, which makes their calculations worthless. It means that the current cost of mining might only be competitive if you assume that bitcoins reach a selling price that they might not ever be able to reach.
I've also heard a proposal for a bitcoin alternative: 1) Calculate the amount of electricity costs for mining bitcoins. 2) Don't mine bitcoins. 3) Take the money that you would have spent on electricity, and invest in something else.
3) Take the money that you would have spent on electricity, and invest in something else.
For example, you could invest in a domain name. Say something like, I dunno, 'mybitcoin.com'. Then post on bitcointalk.org about this great new BTC exchange, where you make it convenient & easy to convert BTC into cold hard USD.
I think you'd net more Bitcoins over a shorter span of time that way.
I thought BitCoin was some cryptocurrency proof-of-concept that got weirdly successful?
It is rad as fuck that cryptocurrency actually works, since paper money is balls to deal with and I'm not super enthusiastic about Visa and Mastercard taking a cut of all cash-based transactions.
Like, it would be neat if a government would actually back a centralized cryptocurrency without the absurd mining difficulty and - I'm going to say it - more traceability.
Here's what I don't understand about the supposed appeal of this system vs money as we currently trade it:
Without a third party - a bank - to manage transactions through, how are you supposed to resolve disputes, protect consumers or defeat fraud without each case needing to be sorted-out by the courts? If I feel ripped-off, and I can't do a chargeback because there is no bank, and the vendor refuses a refund, I'm pretty boned unless I go to a lawyer. Like, every time. Direct person-to-person transactions just plain aren't as smooth in practice as payments through a bank: you can see it in all of the hilarious tragedies post on bitcointalk, all of the fraud and bullshit on craigslist, etc.
Cryptocurrency doesn't even really turn my nerd gears as something that's just interesting on it's own merit, because I think the production of standard fiat currency is actually extremely cool:
We have to produce billions and billions of this product. It has to be easily recognizable, it has to be consistent billions and billions of times - but it also has to be exceedingly difficult for anyone else to produce. Now that, to me, is a challenge.
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So on Bitcoin mining; if my PC is on mostly all day every day anyway, would there be any real downside to just start bitcoin mining alongside the low intensity operations I'm doing anyway?
You guys are talking in terms of people racking up a larger electricity bill than their created coins would pay off, but what if the mining is done on top of your regular use?
So on Bitcoin mining; if my PC is on mostly all day every day anyway, would there be any real downside to just start bitcoin mining alongside the low intensity operations I'm doing anyway?
You guys are talking in terms of people racking up a larger electricity bill than their created coins would pay off, but what if the mining is done on top of your regular use?
1) The Bitcoin apps are resource hogs, so you can't really just mine in the background while doing whatever
2) You're unlikely to make any BTC at all without a 'proper' rig (lolz), for the reasons Schrodinger gave: it's not just a matter of 'put in some effort, out pops Bitcoins' - it's 'put in some effort, the persons who put the most effort in will be very likely to walk out with all of the coins'.
3) Bitcoin mining will ruin your hardware. It stresses your GPU if you use one of the 'efficient' clients, it stresses your CPU if you use the java browser client. The components in your computer are not built to be run at peak output for hours on end, and even if you keep them cool, the stress will wear them out - sometimes in just weeks. You can read about all of the bitching related to this done on the bitcointalk.org forums, because the miners feel they are getting 'ripped off' by nVidia when their GPU burns-out after being used for something it was never intended for.
IIRC, the nature of a transaction has some bearing on whether somebody has to accept currency. For instance, a shop can, to my knowledge, reject pennies (or any other currency) in exchange for a new transaction.
But all currency is assumed to be valid for any debt already incurred, unless there was some prior agreement in place as to the nature of payment that was acceptable. So yeah, as in that case, they cannot after the fact claim that pennies aren't valid payment, that would have had to be specified before the service was rendered.
"Hey, before we tow your car, we want you to know that we don't accept payment in pennies. Is that okay?"
I'm guessing that if you refused these business-conditions, the lawenforcing solution would be slapping the company in the back of the head? Or would it get more muddy at that point?
Posts
so... exactly what is happening now?
The only thing missing from that list is c) Really gullible people who think it will make them rich.
Well, right now, you have a group of people who genuinely believe in the idea of "something for nothing" and "everyone can get rich" because they have no concept of exponential growth. Ronya's scenario that everyone s educated on how pyramid schemes actually work before going into it.
A single user is not accounting for 5% of the entire bitcoin mining economy.
If the government wanted to shut down bitcoin, they wouldn't even need to pass a law. They just run their NSA computers for a few hours and mine the entire economy dry.
Heck, they could mine the bitcoin economy for a few weeks to reset the difficulty level, then leave immediately, grinding bitcoin mining to a halt.
I'm not familiar with Goldline, nor am I familiar with what Ron Paul has to say, so I can't comment too much on that. I'm certainly not supporting any idea of the bitcoin as an alternative to the USD.
I should clarify my point about the USD being a bit of a scam though. I didn't mean to imply that wealth inequality is caused by inflation, though I wasn't really clear with what I said.
The fed is trying to inflate away its problems, and they're buying their own debt. I view these as problems, most especially the last one. There are a variety of other problems with the US financial system as well, namely how much large financial institutions end up being favoured by way of being "too big to fail" despite questionable or openly fraudulent behaviour, all at the expense of the taxpayer. I think this and the system which supports them contributes hugely to wealth inequality. If you own a bank that is considered "too big to fail" then obviously that is very good for you. Indeed, it encourages that banker to do everything in his power to keep his bank in that category. Behaviour that gets bailouts winds up being encouraged, even if it is legally or ethically questionable. There is no easy solution to this, especially because the financial sector is so critical to the US economy in general.
I think the USD is a bit of a scam because its value is kept high because of its status as a reserve currency, rather than any intrinsic value it holds. I feel the US economy is on fundamentally extremely shaky ground. Its obviously taken a bunch of hits in the last several years, but these hits were mitigated (well, not so much for the average citizen perhaps) by large scale bailouts. I don't think there has been nearly enough change in the system since 08, nor healthy growth of the economy, to maintain the value of the US dollar where it is. I think a repeat of 2008 on a smaller or larger scale is very likely because of this,
and I think the dollar's value could drop by a large amount quite suddenly in a "correction" that would likely be very damaging, hence all the effort put in to avoid it. Still, I have a hard time believing that any entity can loan money to itself in perpetuity, and I think some of these measures may end up making things worse in the long run as this correction is just kicked into the future. I think the US dollar is a bit of a scam because its value is supported... uh, politically might be the right term, and I think this will not last.
The problem of banks being too "big to fail" has nothing to do with the US Dollar, and everything to do with how the banks are regulated.
If you allow the George Bailey banks to become the Gordon Gekko banks, then they become "too big" because of the Gecko aspect and "can't fail" because of the Bailey aspect. The solution is to prevent banks from being both.
The US Dollar is backed by US law. It's against the law to refuse them as payment on debt. And keep in mind that "debt" applies to everything, from utility bills to student loans to eating out at restaurants. You can't escape the concept of debt in a modern economy, which means you can't escape the inherent utility value of the US dollar.
That's a lot more valuable to me than gold or bitcoins. I can have a brick of gold, that doesn't mean the vendor has to accept it. Especially since the vendor can (rightfully) suspect that I'm trying to scam him somehow. You can make gold bars filled with tungsten to fool a density test, which means that the only way to test the legitimacy is to cut them in half. With bitcoins, there is literally nothing at all to back up the value, because bitcoins are a total scam.
http://www.businessinsider.com/tungsten-filled-gold-bars-found-in-new-york-2012-9
Based on what? What do you think is the underlying problem in the current economy that the Federal Reserve is unable to address?
All money is essentially the promise that you will get something in the future. Ergo, all money is essentially a form of debt or an IOU that gets passed from one person to the next.
Gold and bitcoins are not a promise of anything. All it represents is, "At some point, a guy dug a hole and then hid the contents of that hole in a vault" or "at some point, some guy with a gaming rig produced a mathematical hash." But it doesn't mean anything. Unless you're interested in gold for it's dental or electrical properties, it's not really redeemable for anything."
The only "promise" that gold or bitcoins offer is the assumption that you can sell it for more US dollars later on. Which is a) a case of greater fool theory, and b) demonstrates that you are still dependent on the US dollar.
I know the "too big to fail" bit isn't directly related to the dollar. My original post kinda combined the issues, in my second one I separated the two thoughts into their own paragraphs. They're related in that they're both a part of the greater US economy, but I know one is not directly influencing another.
The underlying problems in the US economy are, amongst other things, just a lack of growth. Manufacturing has largely left for Asia, creating some interesting trade imbalances. A weakening US economy can actually lead some manufacturing back, but that will take quite a lot of time. So much of the "growth" of the US economy over the past 10 or more years was illusory; banks selling useless debt to each other. For a while its a boom, everyone is buying cars and houses and electronics because credit is so cheap. Then things blow up and everyone realizes that they actually don't have much money at all. This is still going on; attempts at economic stimulus are all well and good, but consumers are already so far in debt that they will again reach a breaking point. More manufacturing isn't the only solution to this, but I do feel that the US as a country is living above its means, and borrowing more money might not work out in the long run.
I'm not concerned about anyone not accepting US dollars. Its the most widely used currency in the world, and it will take some time for that to change, even if the dollar does depreciate. Its that depreciation that I was talking about though; I personally don't want to hold on to a pile of US dollars because I simply don't trust it to retain its value in the long term.
I'm aware that currency is in fact debt. I'm not saying that bitcoins or gold or anything else is more desirable. I'm not suggesting any solutions globally or for me personally; got knows I'm not buying bitcoins, and gold is near historic highs so I don't think I'll be buying that either. I just feel that a great deal of the wealth possessed by the US doesn't really exist. That the bubble is not fully popped, and is growing again. That is why I feel the USD is a bit of a scam; the dollar and the economy in general is not as strong as is claimed.
**shrug** but who knows, and it could take many years before and of my supposed "corrections" take place, if they ever do. These are just my opinions, I'm not claiming any authority here or even trying to change anyone's mind. Just saying why I don't want to hold a lot of dollars, and why alternative currencies appeal to me.
You are not alone in that view - there have been some Very Serious People (tm Krugman) who have been saying that a second bubble bursting is just around the corner, and we're a footstep away from massive currency depreciation.
However, these VSP have been saying this for years - and so far inflation has been at an incredible low and people have been clamouring to give the US money.
So... Ronya could do a better job of this, but some basic economic theory:
"Value" as a nominal concept is always being created. All the way back to agrarian societies, the general long term trend was that crops yields would increase, herd sizes would increase etc. Today we churn out an increasing supply of cars, we develop new games and movies, and we find better ways to give more people more information. Now, if you have a scarcity-controlled money (say, Bitcoins) as Ronya mentioned what tends to happen is you get deflation - that is, the increase of "valuable things to buy" outpaces the money. So where 5 years ago 1 bitcoin will have got you a sack of apples, today the supply of apples has increased so much through innovation etc. that the orchard farmer is practically giving away 5 sacks of apples per bitcoin.
"Wow" says the Farmer, "The bitcoin buys so much more these days! I should just quit farming and stock up on bitcoins instead!" And so people stop spending and start hoarding instead - suddenly the economy takes a huge whack as people stop producing, because it's so much easier just to sit there with money. So a nominal level of inflation is generally desirable - people produce stuff, you want people buying stuff instead of holding on to their pile of dollars. Or bitcoins. Or whatever.
Getting back to current echognomics, GDP can loosely be defined as "Amount of Money in Circulation x How Fast it is Circulating". So if I go out and buy an apple from you for $1, that's $1 for GDP. If 5 minutes later you use that $1 to buy a can of coke, that same dollar has now contributed $2 to GDP. This is baby steps, but stay with me here. Now, if we get some action that causes people to hold on to their money, then the economy begins to falter (often typified by the Babysitting Co-op) - the "circulation" part of the equation slows down. The Fed's role in this is to buy bonds (i.e. issue cash) to increase the money in circulation to stimulate the economy - that's basic monetary policy (and how the Fed essentially controls interest rates).
Now, what happens if the circulation goes back up? Oh noes! There's too much money in the economy, inflation knocks on our door! Investors flee the country! The Fed's most important mandate is to control inflation - it says "Who wants to buy some US dollar bonds?" and happily takes the money out of circulation again. Currently we're seeing a huge demand for US bonds, to the point where investors were willing to pay below real inflation for them (i.e. the equivalent of saying "You can borrow 100, but pay me back 99 at the end of the year"). Bond vigilantes (people who distrust government bonds and cause a run) have yet to be seen, and inflation remains low.
Does this mean that another bubble and/or recession wont happen? No - noone can predict with that level of certainty. But it does mean that the risk of the economy going pear-shaped in the near future is pretty low - we don't want you holding on to your pile of US dollars, so if you save (and earn interest, allowing the bank to lend on your behalf) or invest (increasing production) then this is Working As Intended (tm).
Question though:
You say the Fed buys bonds in order to circulate more cash in the economy as a means of combating deflation. Ok, I guess I can see that. Once inflation picks up and it needs to be reigned in, the Fed sells the bonds to investors or other banks- removing the money from circulation to slow things down. That also sounds about right.
But if demand for bonds is currently very high, why is the fed still buying its own bonds? Don't these forces work against each other?
And I thought the interest rate was controlled by setting the prime lending rate between banks, as opposed to buying its own debt? This is a side issue and I'm not asking for any sort of detailed explanation, a quick explanation if you know would be handy though.
the Federal Reserve can buy any dang thing it wants, subject to its mandate, but for that it wants safe assets (it will want to discard those assets later, so the assets have to retain value. Return is less of a concern). Treasuries are very safe. So it winds up with a lot of Treasuries. It also owns a ton of things that are not Treasuries - it owns a lot of mortgage-backed securities, for instance.
ordinarily policy is conducted via the short-term interest rate, but it is already set as low as possible, so instead they are dispensing cash via hoovering up non-cash assets.
The Treasury/Fed distinction is important but I don't always think about things that way.
The Fed doesn't sell bonds. The Fed is not a part of the federal government, they just buy government debt because it is awesome to have. The Fed is basically just the biggest private player in the game, except that their goal is to keep shit stable rather than make monies.
The Treasury issues bonds, the Fed trades them based on monetary policy. The interbank interest rate essentially controls the flow between the reserve bank (Fed) and the commercial banks, so purchasing securities directly affects that rate.
When the interest rate is low (as it is currently) you can get a liquidity trap where monetary policy has little impact because there is nowhere lower for the interest rate to go. In this case, the reserve bank uses Quantitative Easing as well - this is buying commercial bonds rather than just trading government bonds.
This is so important to underline: your money is valuable because the state says it is, and will (at least in theory) back you if someone refuses to accept it to settle debt:
If you and your friends make gummi coins and have a gentleman's / gentlewoman's agreement to use them as a trading currency, that's all well and good, but the state is not going to step-in to resolve a dispute if one day Craig decides your gummi coins can no longer be used to rent space on his couch.
Bitcoin is unstable for a lot of reasons, but a big part of it lies in how attractive it looks on a given day as a vehicle for trade. That's why, as many people have already pointed-out, it's suspected that the volume of trade seen in BTC may be being artificially created by users simply flopping money from one wallet into a another wallet.
This has happened many, many times. Bitcoin is a currency that is as fraudster friendly as you could hope to make a currency; anonymous, not state protected, not traded through banks, etc.
The largest scam (so far) was perpetrated by Bruce Wagner, a professional matchstick man who was scamming people via mortgage fraud before his Bitcoin days. This incident ties back into what @Schrodinger was saying about how fiat currency has worth - in this case, Bitcoins were being backed by a large exchange firm, and this gave investors some confidence in the currency because, hey, mybitcoin.com will act as a guarantor.
Except that the criticism people have always leveled at the libertarian ideal held true: there was no reason for anyone to set-up a selfless anonymous firm like mybitcoin.com claimed to be. The only reason you would set it up is to con naive people into trusting you with their money, which you could then simply steal without any repercussions.
Dude, thank you, that video made my day.
One of the main problems with libertarian free market currency is that they assume that all transactions are voluntary, and therefore all currency should be voluntary too. If someone sells a car for more than I'm willing to pay, then I can refuse to pay for it, and he can keep his car. If someone refuses to sell his car for money, than I can keep my money. If we both agree that we will trade the car for gummi bears, then we can trade for gummi bears.
The problem is that there are some transactions that can't be refused. For instance, a guy who parks in the wrong space can't change that after the fact. The same applies to someone who has a speeding ticket, or someone who has to pay his taxes.
But all currency is assumed to be valid for any debt already incurred, unless there was some prior agreement in place as to the nature of payment that was acceptable. So yeah, as in that case, they cannot after the fact claim that pennies aren't valid payment, that would have had to be specified before the service was rendered.
"Hey, before we tow your car, we want you to know that we don't accept payment in pennies. Is that okay?"
Yeah, basically as I understand it they can refuse to do business with you is you want to pay in pennies or something. (just as they can refuse to do business with you for a host of legal reasons, like that they think you smell or something)
But they cannot refuse to accept legal tender as payment for a debt. So if you already owe them money, they gotta take it.
I was going to post that, but the story always seemed a bit sketchy to me (if hilarious). I mean, 4 overclocked 5850s shouldn't produce THAT much heat, right? Even assuming his bedroom isn't to code and didn't have sufficient ventilation, I have trouble believing that one of the dumb mining rig set-up would produce enough heat to give someone a stroke in the middle of the night.
If the story is real, I'd guess it had much more to do with the weather conditions than his rig.
Here's a typical mining operation:
And here's an example of what this type of wiring can do to your house...
http://buttcoin.org/bitcoin-house-fire
EDIT:
Also:
Oh yeah.
Home owner's insurance will definitely cover every loss in the event of a house fire.
Now, if the hashes themselves drove people mad like in that movie "π" that would be another story...
My God.
A service centered around having people suck it up when they refuse to follow the law refuses (for a while) to suck it up and follow the law.
It's beautiful.
At least cupcakes and meth labs would actually give you cupcakes and meth to show for it.
The problem with bitcoins is the same problem you had with the agricultural industry in the great depression. Farmers used technology to vastly increase their output, which caused the price to crash. In response to the price crash, the farmers tried to compensate by greatly increasing their output, creating a never ending cycle. Because in the end, there's a finite number of buyers, and demand for food is mostly inelastic.
In the case of bitcoin mining, you are essentially selling your "mining effort." The problem is, the market of your bitcoin efforts is completely inelastic. Bitcoins are designed so that a certain number is produced every 10 minutes, regardless of the amount of mining effort invested. The computational power of bitcoin mining can increase by a factor of 1 million, and it won't change the number of bitcoins being created.
Here's the funny part: An awful lot of libertarians are ideologically incapable of acknowledging the lessons of the great depression, because they tend to assume that demand is always infinitely elastic, and that unemployment is the always the result of being lazy. They believe in a a perfect meritocracy, so the idea that an industry can go out of business for being too efficient is completely foreign to them.
Which means that most bitcoin enthusiasts are ideology incapable of recognizing the trap they've fallen into. They keep plugging more and more power into the problem, assuming that eventually their efforts will pay off.
Sort-of. Each coin is an integer; you 'mine' coins by crunching random integers and relaying these to the Bitcoin verification server. Whenever a valid new Bitcoin integer is made, presto, you've got a coin.
But each coin is artificially made harder and harder to crunch than the last one.
Pretty much. You have to find the data chunk which corresponds to a particular SHA256 hash I think.
It makes petty, economically irrelevant poor-people illegal activity harder. White collar stuff will be just fine.
Now, there is no limit to the number of tickets you can submit. But there's also no limit to the number of tickets that other people can submit. However, there is a very hard limit on the total number of prizes.
The problem is that generating these hashes isn't free. It costs computer parts (which wear down with excessive use), and it costs electricity. So every hash you generate costs money. Which basically means that you're at a casino, competing for the jackpot at the slot machine. Which means that you can easily imagine scenarios where you spend more money gambling on bitcoins than what you can win back as potential earnings. Except with slot machines, the number of prizes awarded is proportional to the number of slots played. This is not true for bitcoins. Also, lots of people have setup mining pools, where the winnings are evenly distributed based on computing power, so you get paid at a constant rate.
Bitcoin miners will continue to scale up their operations as long as they make a profit, in order to stay competitive. If the cost of electricity goes down by half, then a lot of people will respond by doubling the size of their mining operations, because now they can afford it. That means that the cost of bitcoin mining will always be very close to the potential rewards. Here's where it gets interesting: The potential rewards of bitcoin mining is based on the projected sell rate. Which is impossible to know, which makes their calculations worthless. It means that the current cost of mining might only be competitive if you assume that bitcoins reach a selling price that they might not ever be able to reach.
I've also heard a proposal for a bitcoin alternative: 1) Calculate the amount of electricity costs for mining bitcoins. 2) Don't mine bitcoins. 3) Take the money that you would have spent on electricity, and invest in something else.
For example, you could invest in a domain name. Say something like, I dunno, 'mybitcoin.com'. Then post on bitcointalk.org about this great new BTC exchange, where you make it convenient & easy to convert BTC into cold hard USD.
I think you'd net more Bitcoins over a shorter span of time that way.
Here's what I don't understand about the supposed appeal of this system vs money as we currently trade it:
Without a third party - a bank - to manage transactions through, how are you supposed to resolve disputes, protect consumers or defeat fraud without each case needing to be sorted-out by the courts? If I feel ripped-off, and I can't do a chargeback because there is no bank, and the vendor refuses a refund, I'm pretty boned unless I go to a lawyer. Like, every time. Direct person-to-person transactions just plain aren't as smooth in practice as payments through a bank: you can see it in all of the hilarious tragedies post on bitcointalk, all of the fraud and bullshit on craigslist, etc.
Cryptocurrency doesn't even really turn my nerd gears as something that's just interesting on it's own merit, because I think the production of standard fiat currency is actually extremely cool:
You guys are talking in terms of people racking up a larger electricity bill than their created coins would pay off, but what if the mining is done on top of your regular use?
1) The Bitcoin apps are resource hogs, so you can't really just mine in the background while doing whatever
2) You're unlikely to make any BTC at all without a 'proper' rig (lolz), for the reasons Schrodinger gave: it's not just a matter of 'put in some effort, out pops Bitcoins' - it's 'put in some effort, the persons who put the most effort in will be very likely to walk out with all of the coins'.
3) Bitcoin mining will ruin your hardware. It stresses your GPU if you use one of the 'efficient' clients, it stresses your CPU if you use the java browser client. The components in your computer are not built to be run at peak output for hours on end, and even if you keep them cool, the stress will wear them out - sometimes in just weeks. You can read about all of the bitching related to this done on the bitcointalk.org forums, because the miners feel they are getting 'ripped off' by nVidia when their GPU burns-out after being used for something it was never intended for.
I'm guessing that if you refused these business-conditions, the lawenforcing solution would be slapping the company in the back of the head? Or would it get more muddy at that point?