[Blog Post] Surprise: The US Dollar is a Virtual Currency

sinner

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love the last paragraph of the blog:

Quote

We see then that bitcoins, and other virtual currencies, are no more virtual than the money we’re already using every day. More interestingly, while dollars and bitcoins are both virtual, only one of them cannot be created out of thin air. One of them is manifestly scarce, and the other functionally unlimited in supply. One is created by limited mathematical functions – by the scarcity of specific numbers – and the other by the push of a button, by decree of an arbitrary creator. One can be created at whim, and one cannot.

So, while dollars and bitcoins are both virtual, which is actually more real?

hazek

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Quote from: Richy_T on February 12, 2013, 09:44:54 AM

Quote from: jerfelix on February 12, 2013, 05:06:06 AM

I could definitely imagine a company like Mt. Gox, who is holding a lot of Bitcoins on account for people, accidentally locking themselves out of one of their reserve cold storage wallets (or having one wallet stolen by an employee). At that instant, they have fractional reserves. But they could easily set aside a small portion of profits each day to re-fund that wallet.

Which would be worse? Announcing to the world, "We locked ourselves out of one of our wallets, but rest assured...." (potentially causing a run that puts them out of business), or to quietly build the reserve back up?

Pretty much this has already happened to one business (or that is his claim). I forget the name off the top of my head. His action was to suspend all accounts. The last I heard he's intending to pay everyone back but it's hard to see how, it was a lot of bitcoins lost.

http://bitfloor.com/

Richy_T

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Quote from: jerfelix on February 12, 2013, 05:06:06 AM

I could definitely imagine a company like Mt. Gox, who is holding a lot of Bitcoins on account for people, accidentally locking themselves out of one of their reserve cold storage wallets (or having one wallet stolen by an employee). At that instant, they have fractional reserves. But they could easily set aside a small portion of profits each day to re-fund that wallet.

Which would be worse? Announcing to the world, "We locked ourselves out of one of our wallets, but rest assured...." (potentially causing a run that puts them out of business), or to quietly build the reserve back up?

Pretty much this has already happened to one business (or that is his claim). I forget the name off the top of my head. His action was to suspend all accounts. The last I heard he's intending to pay everyone back but it's hard to see how, it was a lot of bitcoins lost.

jerfelix

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Quote from: Monster Tent on February 11, 2013, 06:36:43 PM

Quote from: evoorhees on October 19, 2012, 09:42:35 AM

Quote from: Come-from-Beyond on October 19, 2012, 09:08:30 AM

Quote from: Roger_Murdock on October 19, 2012, 08:59:19 AM

Well, I think it depends on what we mean by "real." In its purest form, money is information. If I'm holding a ten dollar bill, that's supposed to be a way of credibly conveying that I have provided value for which I have yet to receive any kind of "real" satisfaction. Of course, it doesn't necessarily mean that. I could be the central banker with a government granted monopoly on new money creation. Holding bitcoins, which cannot be counterfeited, is a much more credible signal of having given value in the best, whether that value was in the form of auditing and securing the blockchain or providing goods and services. Bitcoin is as close to the Platonic ideal of money as we've yet come. And it's in that sense that I call it the "realest" money.

I think I got u. Unfortunately a lot of bitcoins seem to be "unreal". A lot of people suspect that MtGox uses fractional-reserve trick. If it's true then bitcoins on a MtGox account r less "real" than bitcoins in a personal wallet. OP didn't mention this in his blog post. In the future a bitcoin can be as "real" as a dollar is.

If your accusation against Gox is true, that is a matter of Gox's credibility, not Bitcoin's as a technology or currency. Say we're using gold coins as money, I think we'd both say gold coins are real. If a bank is taking gold coin deposits and issuing non-real coins or claims on coins that don't exist, then it is not the fault of gold, but of that particular bank.

Gox's accounting practices have nothing to do with Bitcoin being real. And for the record, I don't believe for a second that Gox is using fractional reserve.

Unless theres a run on Gox no one will ever be entirely sure of that.

I could definitely imagine a company like Mt. Gox, who is holding a lot of Bitcoins on account for people, accidentally locking themselves out of one of their reserve cold storage wallets (or having one wallet stolen by an employee). At that instant, they have fractional reserves. But they could easily set aside a small portion of profits each day to re-fund that wallet.

Which would be worse? Announcing to the world, "We locked ourselves out of one of our wallets, but rest assured...." (potentially causing a run that puts them out of business), or to quietly build the reserve back up?

Monster Tent

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Quote from: evoorhees on October 19, 2012, 09:42:35 AM

Quote from: Come-from-Beyond on October 19, 2012, 09:08:30 AM

Quote from: Roger_Murdock on October 19, 2012, 08:59:19 AM

Well, I think it depends on what we mean by "real." In its purest form, money is information. If I'm holding a ten dollar bill, that's supposed to be a way of credibly conveying that I have provided value for which I have yet to receive any kind of "real" satisfaction. Of course, it doesn't necessarily mean that. I could be the central banker with a government granted monopoly on new money creation. Holding bitcoins, which cannot be counterfeited, is a much more credible signal of having given value in the best, whether that value was in the form of auditing and securing the blockchain or providing goods and services. Bitcoin is as close to the Platonic ideal of money as we've yet come. And it's in that sense that I call it the "realest" money.

I think I got u. Unfortunately a lot of bitcoins seem to be "unreal". A lot of people suspect that MtGox uses fractional-reserve trick. If it's true then bitcoins on a MtGox account r less "real" than bitcoins in a personal wallet. OP didn't mention this in his blog post. In the future a bitcoin can be as "real" as a dollar is.

If your accusation against Gox is true, that is a matter of Gox's credibility, not Bitcoin's as a technology or currency. Say we're using gold coins as money, I think we'd both say gold coins are real. If a bank is taking gold coin deposits and issuing non-real coins or claims on coins that don't exist, then it is not the fault of gold, but of that particular bank.

Gox's accounting practices have nothing to do with Bitcoin being real. And for the record, I don't believe for a second that Gox is using fractional reserve.

Unless theres a run on Gox no one will ever be entirely sure of that.

Richy_T

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Quote from: Fjordbit on October 19, 2012, 09:41:17 AM

Quote from: Steve on October 18, 2012, 02:02:31 PM

I should also mention, that as far as my kids are aware, their balance is 100% backed. Grin

This reminds me of when I was a kid, I had the same thing where my mom was supposedly keeping track of it. Well, one day after literally years of saving I had over $1,000 and wanted to take it out to buy a new computer. My mom didn't have it.

I asked for cash from then on.

It would be a freakish coincidence if you happened to be German Cheesy

bg002h

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Quote from: Steve on October 18, 2012, 01:29:54 PM

To drive the point home with my kids, they get paid their allowance by me updating a google doc spreadsheet.

Your kids doing well with this still? Have you paid them in a fixed btc or fixed usd amount? If the Number of coins per week decreased over time, how did they respond to that? If they noted value of their allowance going up with time, how do they respond to that?

evoorhees

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Quote from: Come-from-Beyond on October 19, 2012, 09:08:30 AM

Quote from: Roger_Murdock on October 19, 2012, 08:59:19 AM

Well, I think it depends on what we mean by "real." In its purest form, money is information. If I'm holding a ten dollar bill, that's supposed to be a way of credibly conveying that I have provided value for which I have yet to receive any kind of "real" satisfaction. Of course, it doesn't necessarily mean that. I could be the central banker with a government granted monopoly on new money creation. Holding bitcoins, which cannot be counterfeited, is a much more credible signal of having given value in the best, whether that value was in the form of auditing and securing the blockchain or providing goods and services. Bitcoin is as close to the Platonic ideal of money as we've yet come. And it's in that sense that I call it the "realest" money.

I think I got u. Unfortunately a lot of bitcoins seem to be "unreal". A lot of people suspect that MtGox uses fractional-reserve trick. If it's true then bitcoins on a MtGox account r less "real" than bitcoins in a personal wallet. OP didn't mention this in his blog post. In the future a bitcoin can be as "real" as a dollar is.

If your accusation against Gox is true, that is a matter of Gox's credibility, not Bitcoin's as a technology or currency. Say we're using gold coins as money, I think we'd both say gold coins are real. If a bank is taking gold coin deposits and issuing non-real coins or claims on coins that don't exist, then it is not the fault of gold, but of that particular bank.

Gox's accounting practices have nothing to do with Bitcoin being real. And for the record, I don't believe for a second that Gox is using fractional reserve.

Fjordbit

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Quote from: Steve on October 18, 2012, 02:02:31 PM

I should also mention, that as far as my kids are aware, their balance is 100% backed. Grin

This reminds me of when I was a kid, I had the same thing where my mom was supposedly keeping track of it. Well, one day after literally years of saving I had over $1,000 and wanted to take it out to buy a new computer. My mom didn't have it.

I asked for cash from then on.

Roger_Murdock

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Quote from: Come-from-Beyond on October 19, 2012, 09:08:30 AM

I think I got u. Unfortunately a lot of bitcoins seem to be "unreal". A lot of people suspect that MtGox uses fractional-reserve trick. If it's true then bitcoins on a MtGox account r less "real" than bitcoins in a personal wallet. OP didn't mention this in his blog post. In the future a bitcoin can be as "real" as a dollar is.

I understand that concern but it seems to be much, much less of a problem with Bitcoin. First of all, the Bitcoin "monetary base" can't be expanded beyond 21 million coins. And there's much less reason to expect that fractional reserve banking will significantly expand the money supply. With dollars you put them in a bank to keep them safe from theft (not needed with BTC, in fact you're INCREASING your risk when you're not in possession of your coins) and to facilitate payment at a distance (already built in with BTC). There's just much less need for traditional banking. And FRB only expands the money supply if people treat the debt instruments as the equivalent of money and trade them in place of money. I guess some people might make payments by transferring from one Mt. Gox balance to the next, but most people are going to want to take direct control of their coins. (I am way too paranoid to hold a sizable balance on an exchange for any length of time.) Finally, there's no equivalent of FDIC insurance to create moral hazard such that people have no incentive to worry about the solvency of their "banks." (Or did I miss the government bailout for Bitcoinica depositors?) Wink

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Quote from: Roger_Murdock on October 19, 2012, 08:59:19 AM

Well, I think it depends on what we mean by "real." In its purest form, money is information. If I'm holding a ten dollar bill, that's supposed to be a way of credibly conveying that I have provided value for which I have yet to receive any kind of "real" satisfaction. Of course, it doesn't necessarily mean that. I could be the central banker with a government granted monopoly on new money creation. Holding bitcoins, which cannot be counterfeited, is a much more credible signal of having given value in the best, whether that value was in the form of auditing and securing the blockchain or providing goods and services. Bitcoin is as close to the Platonic ideal of money as we've yet come. And it's in that sense that I call it the "realest" money.

I think I got u. Unfortunately a lot of bitcoins seem to be "unreal". A lot of people suspect that MtGox uses fractional-reserve trick. If it's true then bitcoins on a MtGox account r less "real" than bitcoins in a personal wallet. OP didn't mention this in his blog post. In the future a bitcoin can be as "real" as a dollar is.

Roger_Murdock

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Quote from: Come-from-Beyond on October 19, 2012, 08:49:37 AM

Quote from: Roger_Murdock on October 19, 2012, 08:31:16 AM

Wow! Excellent post! And I loved the ending:

Quote

So, while dollars and bitcoins are both virtual, which is actually more real?

Indeed. Bitcoin: it's not just "real money," it's the realest money.

Money doesn't need to be real. It's a medium of exchange. "Which is actually more real?" makes no more sense than "Which is actually more green?". A dollar looks more green to me than a bitcoin but color of money doesn't really matter.

Well, I think it depends on what we mean by "real." In its purest form, money is information. If I'm holding a ten dollar bill, that's supposed to be a way of credibly conveying that I have provided value for which I have yet to receive any kind of "real" satisfaction, i.e., good and services with which I can directly satisfy my wants and needs. Of course, it doesn't necessarily mean that. I could be the central banker with a government granted monopoly on new money creation. Holding bitcoins, which cannot be counterfeited, is a much more credible signal of having given value in the past, whether that value was in the form of auditing and securing the blockchain or providing goods and services. Bitcoin is as close to the Platonic ideal of money as we've yet come. And it's in that sense that I call it the "realest" money.

Come-from-Beyond

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Quote from: Roger_Murdock on October 19, 2012, 08:31:16 AM

Wow! Excellent post! And I loved the ending:

Quote

So, while dollars and bitcoins are both virtual, which is actually more real?

Indeed. Bitcoin: it's not just "real money," it's the realest money.

Money doesn't need to be real. It's a medium of exchange. "Which is actually more real?" makes no more sense than "Which is actually more green?". A dollar looks more green to me than a bitcoin but color of money doesn't really matter.

Roger_Murdock

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Wow! Excellent post! And I loved the ending:

Quote

So, while dollars and bitcoins are both virtual, which is actually more real?

Indeed. Bitcoin: it's not just "real money," it's the realest money.

mobile4ever

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Quote from: Steve on October 18, 2012, 01:29:54 PM

To drive the point home with my kids, they get paid their allowance by me updating a google doc spreadsheet.

I am guessing they can not print it out more than once.

bg002h

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Well written and worth the read.

hazek

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Wow that blog post is so full of win it's unbelievable. I think it's really well written and maybe just maybe people might not experience too much cognitive dissonance reading it to be able to actually wake up to the truth - that they already are using a virtual currency.

It's funny just the other day I tried to explain this to my parents, and guess what, I wasn't successful at all. But your blog posts has now armed me with a few more analogies and arguments that give me the confidence to try educating them again Cool

allthingsluxury

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Quote from: Steve on October 18, 2012, 02:02:31 PM

Quote from: evoorhees on October 18, 2012, 01:37:04 PM

Quote from: Steve on October 18, 2012, 01:29:54 PM

To drive the point home ~~with my kids~~, ~~they~~ everyone gets paid their ~~allowance~~ salary by me their bank updating a google doc spreadsheet.

FTFY Steve Wink

I should also mention, that as far as my kids are aware, their balance is 100% backed. Grin

Hah very nice Steve. The funny thing is most people can't seem to grasp this concept. Bitcoin is vastly superior to most modern day fiat currencies. At least it is limited in quantity and can't simply be doubled by adding a few zeros, like most modern day virtual currencies (Ie. the US Dollar, etc.).

Good blog post evoorhees.

stevegee58

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