QUESTIONING BITCOIN AT 1000
Is Bitcoin a Ponzi scheme?
No it’s not. Bitcoin doesn’t require constantly new people buying it to survive as is true for Social Security or other national social programs around the world. Its value will change with demand, just like everything. Ponzi scheme requires constant growth, or new membership, to pay the old members. This is not the case with Bitcoin.
This doesn’t mean its price may not go to zero. If there is no demand for it, this would certainly be real. But to call it a ponzi scheme is like saying cars are a ponzi scheme, or toys, or gold, or anything that can be bought and sold. Speculative bubbles can appear in any of those things.
Social Security is a Ponzi Scheme because new workers are constantly required to pay for the old workers getting more than what they put in.
Is Bitcoin living out of crime? Can someone build the case base on this plausible argument?
One of often found statements about Bitcoin is the trend of aligning digital crypto-currencies with crime related activities. But this statement can’t stand after short thought. Isn’t it possible to do the same with fiat currencies like dollars, yuans, euros?
Yes, you can evade all kinds of legal ripoffs including capital controls, inflation, taxes, bank fees, Cyprusing, civil forfeiture, etc. But if illegal activities were the criterion, the first currency to kill would be understandably US dollars and then all other currencies.
Is Bitcoin new freedom currency? Sort of.
People misunderstand the fundamental utility of Bitcoin. Have you ever spoken to a Chinese investor trying to get funds out of China? You need approvals and only those well-connected with the Communist Party get prompt approvals. I have read about most recent trick but can’t confirm if true : Fly to Macau, where Chinese can bring in their Yuan freely. Go to Stevie Wynn’s casino, exchange Yuan for chips, fly to Nevada with said chips, exchange for US dollars.
Remember, the Chinese wanted Paypal for a domestic payments system, but didn’t want to ship 3.5% back to the US as a commission. The Chinese requested the code, Paypal wasn’t cooperative.Since then, China has been looking for a payments system with a lower transaction fee than Paypal.
So does anyone still wonder why Bitcoin in China has the top volume? China has begun accepting bitcoin on their web. Big game-changer with billion plus people.
See how China takes of in software downloads in 2Q2013.
The concentration of power between Bitcoiners stays unchanged for now, though the power seems far from being decentralized. The question here is what happens if some central bank or large entity with infinity supply of money decides to manipulate this market. If they start buying Bitcoin, where for them the price is not relevant factor to consider, they could accumulate large amounts of Bitcoin and then make huge fluctuations in short periods of time through dumping large amount of Bitcoins into market at once.
This can slow down the adoption rate by people who need stabile exchange mediums. On the other hand it doesn’t undermine Bitcoin as alternative as all major asset markets are influenced directly or indirectly through market interventions.
$110MM is pretty impressive holding for biggest Bitcoiner, or better say the top wallet, but unless you’ve got the means to print 85 billion per month, every month like FED, this will stay as danger to crypto-currencies.
Ben Bernanke himself said Bitcoin has potential. The MSM features and promotes bitcoin almost daily,the government could easily ban bitcoin and make it illegal. They have not. These may be all signs that it was created with bigger purpose than small “revolution” against fiat system.
In name of “national” interest activities?
The CIA was interested in Bitcoin close to the beginning. Do you not think they had a meeting after that little talk discussing how they could use it to their advantage?
My humble opinion is that the meeting went something like this:
“So wait we can just put a few super computers on this thing and get tons of them for free without changing the market, ok, do that. Ok , just to be safe, buy as many bitcoins as you can into as many wallets as you can, I don’t care if it goes from 50 cents to 9 dollars or to 1000 dollars for that matter.”
They could have gotten tons of Bitcoins for free mining and the lions share of this tiny market. With a market share like that they could do whatever they wanted at times of low liquidity. I don’t think this is a conspiracy theory, its only what I would do in their shoes, if for nothing else for a little safe keeping control.
Can I compare Bitcoin to Gold?
Bitcoin follows ‘laws of thermodynamics’, just like gold; there’s a financial cost attached in attaining each Bitcoin.
To get Bitcoin you need to mine it, as the difficulty increases in breaking the encryption that acquires each Bitcoin, so does the infrastructure cost and electricity cost. If today it costs $2000 in electricity and + $100 per coin in infrastructure cost, no one will be mining Bitcoin if coin price is $1000. Just like no one will mine gold to lose money.
An ounce of gold or a line of code has no difference if the cost of attaining either one is equal. Both Gold’s and Bitcoin’s value comes from the utility of using them as a currency or store of value.
Throughout most of history people had little industrial use of gold, it was valued for its scarcity. We are born into the belief that gold is valuable. Bitcoin has only been around for 3-4 years.
Bitcoin’s competitive advantage comes from the fact it is the first borderless and decentralized currency, instantly transferrable to anywhere in the world, a property gold does not have.
There’s approx 5.8 billion ounces of gold ever mined, compared to Bitcoin’s total of 21 million coins possible. ~270:1 ratio. So if Bitcoin ever becomes as “traded” as gold, each Bitcoin will be $300 000 relative to today’s oz gold price [This is a simle calculation, not a projection price].
Can one country threaten to outlaw the Bitcoin system?
There is a lot of fear of mighty world central banks that could threaten the digital currency success. Expecting that US can enforce rules over digital currency transactions abroad.
Capital is always transferred from losers to winner, game theory at work. If one country or possibly group of countries tries to ban Bitcoin protocol other groups could greatly profit from such a move.There are another 160 countries that will let you transact in Bitcoin if the US shuts it down.
Transparency is the currency. Anonymity threatens only control hungry governments.
All I can offer up to skeptics is for them to imagine the Fed, central banks, COMEX, etc all having an online real-time audit web portal open to everyone to examine any account and any time and track any transaction ever made in their entire history.
And that any transaction that was without a 1:1 backing would be rejected by every single participant in the market. The world would be a very different place than the opaque manipulation of today.
Bitcoin is the entity that supports this level of auditing and transparency. That’s why they’ll have to attack it in ways we haven’t seen before, because the usual sneaky manipulation either isn’t possible.
Is Bitcoin technology safe?
The Bitcoin naysayers may talk Bitcoin down, as one might talk down stocks or other investments, but at a certain point they also have to demonstrate very specifically how the bitcoin technology is flawed.
Up to this point, the people trying to expose flaws are “insiders” or advocates who are working to fix them. Many flaws and hacks up until now have been based around order volume issues, bitcoin availability, and human issues like fraud/theft, but the technology itself is proving to be viable.
Thus far we’ve seen nothing that convinces me that governments have the knowledge to shut-down Bitcoin. They have neither the legal grounds nor technical expertise to outlaw Bitcoin.
If anything, the burgeoning counter-trend toward encryption/privacy bodes well for Bitcoin. I do not believe government be ahead of the market regarding anything technical. The geeks have a very real advantage in a borderless world.
If you read about a Bitcoin “hack”, it is always a hack of someone’s infrastructure built around bitcoin, as the protocol itself has not to anyone’s knowledge ever been hacked. That’s analogous to someone breaking into your poorly designed gold vault.
Bitcoin is based on an encryption scheme called the Elliptic Curve Digital Signature Algorithm (ECDSA). ECDSA is actually a collection of algorithms and operations that result in a Bitcoin “private key” which can be hashed into a public key, creating a keypair unique to any other (theoretically) and each keypair being statistically near impossible to reproduce.
Within ECDSA is the central algorithm that has two variants. Depending on its implementation, it can be called either secp256k1 or secp256r1. Bitcoin implements the first one, secp256k1, as it’s a more “expensive” method that sacrifices speed for security. It’s a more secure method than the second one.
What is the value of Bitcoin? Where is the intrinsic value?
The value of a Bitcoin or anything else is not determined by the input cost. Input cost is simply one determinant of whether an item can be made at all or sold for a profit. The value of bitcoins are determined by what traders want to trade for them.
Don’t forget. There’s no such thing as “intrinsic value”. That’s just a misleading expression suggesting that there are “objective” values in nature. Any value only exists in the human mind, even if we talk about real physical assets.
However if you look at it from further away, the labor these computers do serves as something completely different. Keeping a decentralized network of peers securely, and without the need for trust, agreeing on a ledger that keeps track of a limited digital asset and who owns fractions of it. And that certainly has a lot of value in today’s world because of what it allows users to do.
I mean you could say the same thing about any computer doing anything else, because if you get to the very core components of a computer, all any computer ever does is math, nothing else. But this math, which by itself could be pointless, allows you to connect to other computers, allows you to write a word document, allows you to send an email, draw a picture, edit a movie, and what ever else one can imagine and all these functions certainly have value.
It’s the whole that provides the value not a specific moving part.
Does Bitcoin posses money properties?
They are perfectly homogeneous, easily cognizable, conveniently divisible, storable at practically no cost, and imperishable if we do not count apocalypse when all bets are off the table in most asset classes. Also, they seem to be fully shielded from counterfeiting. In addition, they exist as a consumption and investment good.
Well, some say they’ll just crash the internet. If they do that, we’ve got bigger problems than Bitcoins. The entire global supply chain relies on the internet.
Can someone broke into my Bitcoin Wallet?
Your Bitcoin wallet is not a wallet actually. It does not contain your bitcoins.Your Bitcoins sit in the cloud with all the other Bitcoins.Your bitcoins are yours because you have the keys to them.
Your Bitcoin wallet contains only the keys that let you spend the Bitcoins you control.When you make a backup of your wallet, you are making a copy of the keys.If someone else has a copy of the keys, you are sharing control of your Bitcoins. This includes hosted wallets.
Bitcoin security hint> you can and should encrypt your Bitcoin wallet and make several backups.If the copy you normally use is lost or stolen, a theif can’t do anything with it without your encryption key.Coins spent from any copy of the wallet will be “spent” from all copies. They’re all the same. Your balance is recorded in the public ledger, not in the wallet. The wallet gives you access to your coin, it doesn’t contain the coin.
Closing statement
There are people much smarter than me involved with this and other virtual currencies.
In the end why would anyone be against Bitcoin? It’s their money if they want to use it in that form. It’s absolutely none of my business who does what with their money or computing power. How could anyone be against a competitor to the major fiat currencies? If you don’t like the concept, just ignore it.
Bitcoin is just massively distributed data. The private key that allows me to move Bitcoins under my control to another account is just a 256 bit number. Governments will have a hard time outlawing math. They have hard enough time as it is waging war on drugs, file sharing, prostitution, money laundering and fraud.
Governments would not like this development at all. So false flags are expected.
And there is no Bitcoin mania, there is only fiat panic. Volatility will remain big issue for non-geek masses to enter the market. The currency exchange rate risk of going in and out of Bitcoin may be easily as high as 10% in a single day.
Still the benefits are attractive. Anonymity. Decentralised. Government free.With tremendous transaction cost advantage. Not a debt-based system.
Biggest risk? If there is a technical flaw that will get exposed when a billion people are using it. Competing crypto-currency backed by major international companies on the supply side. Or invention easy to access free energy.
In the end it is not about Bitcoin. This is about transactions taking place outside of the currently approved system. Bitcoin just happens to be the medium. You don’t have to like what these people holding Bitcoins do. But there is always a market for this.
PS: I hold ZERO bitcoins and was never invested in this vehicle.
Author CHARTIST
POSTED ON THURSDAY, NOVEMBER 28, 2013 AT 5:31PM
IN Category; ECONOMIC SYSTEM