Is Bitcoin a Legitimate Currency or a Potential Scam?

[TylerH]

phinds, I used dollar signs didn't I? Or am I missing some meaning in the way you worded that?

 

[ModusPwnd]

I don't get how you see this as "hedging". Hedging would be if you got your DOLLARS worth of bitcoins at the end of the transaction. If you did a transaction and the value of bitcoins halved, as it has done, then you end up with half your expected payment. That can hardly be considered hedging.

Did you read what you quoted? It is exactly hedging and exactly what you describe. If the bitcoin value halves while your coins are hedged you get twice the coins.

"if you sold your drugs for $50 worth of BTC, you get $50 worth of BTC at the end of the transaction."

^^ This is hedging.

 

[phinds]

phinds, I used dollar signs didn't I? Or am I missing some meaning in the way you worded that?

OOPS ... my bad.

 

[phinds]

Did you read what you quoted?

I did but I have a very minor form of dyslexia that bites me in the *** like this sometimes. My mouth or my eyes are doing one thing and my brain is doing something else. My worse offense on this forum is that a couple of times my fingers have typed "proton" while I THOUGH my brain was telling it to type "photon".

 

[Pythagorean]

"Bitcoin Becomes a Real Job and Wall Street Is Hiring"
http://motherboard.vice.com/en_ca/blog/bitcoin-becomes-a-real-job-and-wall-street-is-hiring

 

[TylerH]

Overstock.com plans to begin accepting BTC in 2014. http://www.forbes.com/sites/amitcho...stock-com-is-going-to-accept-bitcoin-in-2014/

Here's to hoping Amazon will follow. That'll cause a spike like never before.

 

[lendav_rott]

I mined these things for a few months - end result, my video card fried and with the profits I made, I bought a new card and kept about 80€.

There are so many discussions Everywhere how this imaginary currency will take over and blabla.. it's not going to happen. Can't even actually get by a day at work without someone pointing out how "bitcoin will take over". It's just some little fun to have trying how your setup could handle the mining. Were it to take over, why are we measuring its value in actual currency in the first place?

 

[Pythagorean]

Bitcoins have little to do with mining anymore. While I agree that it won't take over, its apparent that it's becoming more accepted by mainstream economy and it does serve a unique niche.

 

[wigglywoogly]

I've tried - with little success - to find an average energy cost per bitcoin. I'm not talking about the amount of money you pay to your energy supplier for your mining setup, but the actual number of watts expended by a computer in solving enough cryptography problems to mine a coin. Presumably this is an increasing function of the 'hardness' parameter (that itself is always increasing), so maybe someone knows what the average energy cost was at various times in the past.

I suppose the answer I'm looking for is of the form: 'In November 2013, the average energy expended to mine a bitcoin was X.'

Sorry if that's a dumb question.

 

[phinds]

I've tried - with little success - to find an average energy cost per bitcoin. I'm not talking about the amount of money you pay to your energy supplier for your mining setup, but the actual number of watts expended by a computer in solving enough cryptography problems to mine a coin. Presumably this is an increasing function of the 'hardness' parameter (that itself is always increasing), so maybe someone knows what the average energy cost was at various times in the past.

I suppose the answer I'm looking for is of the form: 'In November 2013, the average energy expended to mine a bitcoin was X.'

Sorry if that's a dumb question.

It's not a dumb question, but it's not likely to have a specific answer since it will depend greatly on the energy efficiency of the machine(s) being used.

 

[wigglywoogly]

I see that. But X (as I called it) would have some kind of distribution with a mean, unless I'm very much mistaken. I can see how it would be nigh on impossible to calculate accurately though.

This interests me because I like concepts like 'Energy Returned Over Energy Invested' and I was thinking - what externatlities does bitcoin mining produce? Hashing monopoly money might not be such a great idea if we piss away all our energy reserves to do it!

(I am an economics student but my first love is physics)

 

[DavidSnider]

I see that. But X (as I called it) would have some kind of distribution with a mean, unless I'm very much mistaken. I can see how it would be nigh on impossible to calculate accurately though.

This interests me because I like concepts like 'Energy Returned Over Energy Invested' and I was thinking - what externatlities does bitcoin mining produce? Hashing monopoly money might not be such a great idea if we piss away all our energy reserves to do it!

(I am an economics student but my first love is physics)

I have trouble imagining it is more wasteful than digging up gold, melting it, transporting it and burying it underground again.

 

[TylerH]

I see that. But X (as I called it) would have some kind of distribution with a mean, unless I'm very much mistaken. I can see how it would be nigh on impossible to calculate accurately though.

This interests me because I like concepts like 'Energy Returned Over Energy Invested' and I was thinking - what externatlities does bitcoin mining produce? Hashing monopoly money might not be such a great idea if we piss away all our energy reserves to do it!

(I am an economics student but my first love is physics)

You should look into peercoin. It's one of many cryptos that have a hybrid proof of work and proof of stake minting scheme. The idea is that mining will generate initial amounts and when it losses profitability, then users will generate coins using proof of stake. Proof of stake works like interest at a bank, you get it without any significant energy expenditure.

 

[Pythagorean]

Major Silk Road 2.0 hack costs bitcoin users millions of dollars:

While Ulbricht awaited trial on charges including murder-for-hire and narcotics trafficking the Silk Road was relaunched. Yet the site's future was put into doubt again on Thursday when an administrator who identified himself as “Defcon” explained on the site's forums what had happened.

“I am sweating as I write this...I must utter words all too familiar to this scarred community: We have been hacked,” he wrote. “Our initial investigations indicate that a vendor exploited a recently discovered vulnerability in the bitcoin protocol known as 'transaction malleability' to repeatedly withdraw coins from our system until it was completely empty.”

Defcon did not disclose the exact number of bitcoin that was stolen yet Nicholas Weaver, a researcher at the International Computer Science Institute, told Forbes that approximately 4,400 coins were taken, equaling about $2.6 million.

Since the initial Silk Road was shut down in October, a number of former competitors rushed in fill the void. Administrators for at least three of those sites disappeared after stealing users' bitcoin and another two voluntarily closed down after they were hacked.

One site, known as Sheep Marketplace, was victimized to the tune of $6 million in bitcoin by one administrator who said he found a weakness in the site's security. Similarly, Black Market Reloaded announced that it was unable to accommodate the massive influx of ex-Silk Road users.

http://rt.com/usa/silk-road-hack-bitcoin-millions-947/

 

[Adderall]

interesting paper on the topic on arXiv.org : Bitcoin: a Money-like Informational Commodity

Jan A. Bergstra, Peter Weijland
(Submitted on 19 Feb 2014)
The question "what is Bitcoin" allows for many answers depending on the objectives aimed at when providing such answers. The question addressed in this paper is to determine a top-level classification, or type, for Bitcoin. We will classify Bitcoin as a system of type money-like informational commodity (MLIC).

 

[qspeechc]

Most of the posts seem quite negative about bitcoin. I don't know much about it, but I tried to find articles with a positive view of it, or at least look at both sides of the argument, and they do in fact exist, which you would never have guessed from reading this thread:

http://mobile.nytimes.com/blogs/dealbook/2014/01/21/why-bitcoin-matters/?_php=true&_type=blogs&_r=0&utm_content=bufferab534&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

https://medium.com/money-banking/2b5ef79482cb

http://www.coindesk.com/pros-cons-bitcoin-merchants-view/

http://bitcoinviews.com/bitcoin-101-what-is-the-bitcoin-revolution-part-1-transparency-on-steroids/



http://www.henrymakow.com/bitcoins.html

http://www.easternprogress.com/2014/01/23/bitcoin-forum-examines-pros-and-cons-of-new-digital-currency/

http://bitcoinvista.com/2014/03/02/bitcoin-the-pros-and-cons-for-consumers-and-merchants/

 

[nsaspook]

IMO the current problem with Bitcoin is not the concept but the implementation. The Bitcoin network doesn't rely on 'trust' but the people who take your cash to run it must be 'trustworthy'. The current system is based on speculation with a minefield of exchanges that can vanish overnight with seemingly no recourse for those with lost money. The theoretical antifraud and safety advantages of Bitcoin are based on trust in the 'faith and credit' of the operators of the network to do the right with the fruits of your life when bad stuff happens. The track record so far has been dismal.

Like 'corn' it's currently really a commodity being manipulated for profit not currency and like corn without controls it's doomed to deflate in value if it becomes too popular due to a speculative bubble.

 

[qspeechc]

IMO the current problem with Bitcoin is not the concept but the implementation. The Bitcoin network doesn't rely on 'trust' but the people who take your cash to run it must be 'trustworthy'. The current system is based on speculation with a minefield of exchanges that can vanish overnight with seemingly no recourse for those with lost money. The theoretical antifraud and safety advantages of Bitcoin are based on trust in the 'faith and credit' of the operators of the network to do the right with the fruits of your life when bad stuff happens. The track record so far has been dismal.

Like 'corn' it's currently really a commodity being manipulated for profit not currency and like corn without controls it's doomed to deflate in value if it becomes too popular due to a speculative bubble.

It's funny you should mention that, I read something about it in some of the articles I linked above:

The practical consequence of solving this problem is that Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate.

And there's more about that in the http://mobile.nytimes.com/blogs/dealbook/2014/01/21/why-bitcoin-matters/?_php=true&_type=blogs&_r=0&utm_content=bufferab534&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

And here:

Still, for the time being, bitcoin is in many ways the best and cleanest payments mechanism the world has ever seen.
[...]
The source code for bitcoin is free and public, which means that just about every hacker and cryptographer in the world has had a crack at it. And they’ve all come to the same conclusion: it really works.
[...]
Such people, including Satoshi Nakamoto, are far from unique in their mistrust of all existing financial institutions. What sets Nakamoto apart is that he turned that mistrust into a philosophy, the most important driving force behind the bitcoin project. When he introduced bitcoin to the world in February 2009, Nakamoto boasted that his new currency was “completely decentralized, with no trusted parties”. And he explained in some detail what he saw as the problem in need of a solution:

"The root problem with conventional currency is all the trust that's required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve. We have to trust them with our privacy, trust them not to let identity thieves drain our accounts."
[...]
If you hold dollars, you’re trusting the US government not to destroy your wealth. Bitcoin, by contrast, is based on mistrust — it’s specifically designed so that it’s every man for himself.

 

[nsaspook]

'every man for himself'

-- I'm a student and this is almost all of my money I have left (I actually have a lot of debt, which I intended to pay back with that money). I'm really panicking right now and not sure what to do!

-- I'm in Tokyo as well and I lost ~8 BTC and 500,000 in JPY. Please let me know how your case progresses and whether at any time you think it would be possible to get others involved. I really hope I can get at least some of that money back. I need it.

-- Hey, I'd like to get involved in this as well. Gox has yet to deliver a withdrawal of funds from late last year and currently has all my coins locked up because of their withdrawal lock. Email is below, let me know if you need any other info. Thanks

-- (originally I tried to withdraw $30,000.00, but Mt.Gox canceled my withdraw and asked me to change to GBP. Funds never arrived--> Mt.Gox confirmed they were unable to wire funds, but funds are not re-instated to my account. Mt.Gox admits in the e-mail funds are mine.)

-- I found your post just today after the Gox closed the site. I had 10,200 USD with them, which I traded just last week for gox coin. I initially deposited USD from bank account on November 2013, and traded on Gox just about 2 weeks ago, not knowing there was a trouble to withdraw any BTC from them. I do have screen shots from last week from trading and all my history since November 2013. My initial deposits in November have been 8000 USD and 2200 USD, so whatever trading I did in last weeks was for vain since gox did not let any BTC out of the site. Current standing on my account is about 27 BTC and around 2200 USD but since gox coin was never a real BTC, as I just learned recently, I consider Gox owing me 10200 USD which I initially deposited.

... on and on...

https://bitcointalk.org/index.php?topic=476535.msg5255853

I'm sure that everyone is aware that MtGox declared bankruptcy yesterday. As such, our lawsuit is off and we, like everyone, will be filing a claim in bankruptcy court. Words cannot express my (our) disappointment in this whole debacle. Over the last week I have spoken to people from all around the world, many of whom are now facing financial catastrophe - and it is heartbreaking. It is especially disheartening given the noble endeavor we had set out to achieve. To create a financial system based on open source principals that would level the playing field for people around the world and liberate them from the various corrupt central banks sabotaging their success and financial freedom. Yet here we are, betrayed by a trust system similar to what we sought to avoid. Ultimately, I still believe in cryptocurrency technology and how it will revolutionize the financial world; but it is clear that still has a lot of growing up to do - both the protocol and the service ecosystem. As a testament to the REAL PEOPLE who've been left in the wake of this lesson, I'd like to share with you a small sample of the personal messages I received

Don't confuse untrusted Bitcoin transaction security with the trust need for safe commerce from service providers. Some of these people were stupid but they still don't deserve to get robbed.

 

[Tosh5457]

IMO the current problem with Bitcoin is not the concept but the implementation. The Bitcoin network doesn't rely on 'trust' but the people who take your cash to run it must be 'trustworthy'. The current system is based on speculation with a minefield of exchanges that can vanish overnight with seemingly no recourse for those with lost money. The theoretical antifraud and safety advantages of Bitcoin are based on trust in the 'faith and credit' of the operators of the network to do the right with the fruits of your life when bad stuff happens. The track record so far has been dismal.

Like 'corn' it's currently really a commodity being manipulated for profit not currency and like corn without controls it's doomed to deflate in value if it becomes too popular due to a speculative bubble.

I agree, sometimes people use these thefts to discredit bitcoins, but that's like using credit card thefts or PayPal thefts to discredit the major currencies. Any online company that deals with money, either it deals with Bitcoins, US dollars or whatever, is in risk of this happening to them. For example a recent credit card theft scandal at a major US retailer.

Though there is one big difference between major currencies and Bitcoins, which also motivates hackers to steal Bitcoins instead of any other currency: the hackers who steal Bitcoins can much more easily launder it than with other currencies, in part because it's not recognized as a real currency, so authorities won't even try to find the hackers who steal Bitcoins. And like nsa said, even the financial services providers, like Bitcoins exchanges, can disappear with all the money and won't even get investigated. The anti money laundering and anti-theft measures that are today in place don't apply to Bitcoins: the lack of any regulation isn't helping the Bitcoins market.

 

[Czcibor]

I find here quite big irony. The Bitcoin is proudly free and unrelated to gov.

So later we're puzzled when:
-it's being used for illicit transactions;
-it's value is terribly unstable because no central bank would try to maintain its price;
-when it's being stolen then govs have real problem to retrieve and no banking safety regulations protect prior owners.

While I see some advantages (like free and immediate international micro payments) I think that's its claimed advantages work here against it. And I think that some people with anarchist (libertarian) lean had a painful lesson about the role of gov. Yes, some regulations actually had a purpose.

 

[AlephZero]

'Some of these people were stupid but they still don't deserve to get robbed.

You can organize your life starting from one of two positions:
1: people are basically good, with a very few exceptions.
2: people are basically bad, with a very few exceptions.

Option 2 seems a better match to reality, in my experience. The bitcoin community seems to have a touching faith in option 1.

 

[qspeechc]

Here is a leaked document, supposedly an internal MtGox document, but not verified, I think.

I don't claim to understand bitcoin, I just read a bit about it on the web. I found the comments on this article interesting.

I suppose you're all talking about this:

Compared with previous issues, he notes, such “transaction malleability” glitches are relatively minor. What they have done is expose bugs in the software. However, these bugs do not affect the integrity of the Bitcoin protocol itself, Mr. Norton points out. Rather, they affect the way third-party vendors process transactions.

From here

This article is strongly critical of bitcoin, calling it a ponzi scheme.

A detailed look at MtGox and bitcoin.

 

[AlephZero]

I wouldn't necessarily call bitcoin a Ponzi scheme. But it does seem to want to revert to a very literal interpretation of money as "a store of value" (as in the classic definition by Jevons, 1875)

It seems very much like an electronic implementation of the idea (long predating Jevons of course) that "money" was a tangible object with its own intrinsic value, e.g. a precious metal, that you could carry around with you and physically defend against theft etc. Hence the bitcoin terminology of "wallets", "mining", artificial restrictions on supply to maintain value, etc.

But the financial events of 2008 have revived interest in an alternative idea that was generally played down by economists (who of course know everything worth knowing about economics ... cue hollow laughter) that the primary function of money has nothing to do with storing value, but is a mechanism for redistributing debt (note, "debt", not "credit", "wealth", etc).

 

[Pythagorean]

It seems very much like an electronic implementation of the idea (long predating Jevons of course) that "money" was a tangible object with its own intrinsic value

Isn't that how most people view any currency nowadays?

 

[.Scott]

I haven't purchased any Bitcoin yet - but I may.

There are some catalog sites that end up being stationed in some foreign country - so when I get to the "checkout", my credit card may not work. Often the handiest method of purchasing from those sites ends up being Bitcoin - at least for me. So a small (say $100) Bitcoin wallet might be worth it to me.

As for "anonymous", well it is anonymous, but... All of the transactions are completely public and some can be attached to specific people and locations. Although this information is theoretically exploitable for tracking down the players in some other transactions, so far there are no publicized examples of where this has succeeded. Still, I wouldn't put my life on the line depending on its anonymity.

Regarding "Ponzi": Perhaps the biggest difference between Bitcoin and a Ponzi scheme is that there is no Ponzi-like story that goes with using or buying Bitcoins (although, in one case, one was created - and subsequently prosecuted as such). In general, no one is guaranteeing anyone quick and huge profits by buying and selling their Bitcoins - or saying that you need to sell Bitcoins to 5 other people to accumulate riches.

In comparison to US currency: Since 1971 most Western currencies became "fiat" currencies, there being no commodity (silver, gold, tobacco, whatever) backing them. Depending on exactly how you define "fiat currency", Bitcoin might be called "fiat" as well - although, as some have indicated, it is tied to the cost of energy and computer technology. 80% of the Bitcoins will be "mined" by 2018 and since they are not explicitly tied to energy anyway, I expect they will become more and more "fiat-like".

Perhaps the biggest difference is in the way that they are regulated. For most national currencies, there is a government that regulates the value with an interest in keeping their currencies useful to their economy. For Bitcoin, there is preprogrammed regulation designed to establish a persistent Bitcoin usefulness, but that isn't going to adapt beyond it's original design. Some think that's an advantage.

Break anonymity attempt #1: http://www.businessinsider.com/220-million-sheep-marketplace-bitcoin-theft-chase-2013-12
Break anonymity fail: http://www.escapistmagazine.com/news/view/130356-Bitcoin-Theft-Victims-Search-For-100-Million-In-Sheep-Farce
Breaking anonymity attempt #2: http://www.zdnet.com/hackers-allege-mt-gox-ceo-still-controls-stolen-bitcoin-7000027137/
Mining schedule: https://en.bitcoin.it/wiki/Controlled_supply
1971 Switch to fiat money: https://en.wikipedia.org/wiki/Nixon_Shock

 

[gfd43tg]

But the financial events of 2008 have revived interest in an alternative idea that was generally played down by economists (who of course know everything worth knowing about economics ... cue hollow laughter) that the primary function of money has nothing to do with storing value, but is a mechanism for redistributing debt (note, "debt", not "credit", "wealth", etc).

I do not think the Austrian economists were playing down the 2008 financial crisis. It's the Keynesian economic school of thought that didn't see this coming.

 

[nsaspook]

Until there is true legal recourse and people sitting in jail for the loss of hundreds of millions in invested 'real' currency I don't plan on spending 1c on bitcoin. You are paying 'legal tender' for a digitally signed certificate of a empty box and as soon as you get a digitally signed certificate for that empty box as a receipt you have what you paid for. The small bitcoin 'true believers' are going to wish they had invested in Nigerian prince bank accounts if criminal activity continues at the same pace because at least then they could report that a real crime was committed if a crook makes off with their money.

It might not be a pure Ponzi scheme but it could become the best proof of the Greater Fool Theory.
http://www.wired.com/images_blogs/threatlevel/2012/05/Bitcoin-FBI.pdf

 

[ModusPwnd]

You can organize your life starting from one of two positions:
1: people are basically good, with a very few exceptions.
2: people are basically bad, with a very few exceptions.

Option 2 seems a better match to reality, in my experience. The bitcoin community seems to have a touching faith in option 1.

How do you figure? Its the exact opposite. The bitcoin community does not have a faith in humanity. That is why they support a system that purports to be intrinsically secure based on math rather than secure based on organizations of people. As Bruce Schneier is famously quoted, "Trust the math". Bitcoin fans don't trust people, they trust the math (for better or worse).

 

[nsaspook]

How do you figure? Its the exact opposite. The bitcoin community does not have a faith in humanity. That is why they support a system that purports to be intrinsically secure based on math rather than secure based on organizations of people. As Bruce Schneier is famously quoted, "Trust the math". Bitcoin fans don't trust people, they trust the math (for better or worse).

I "Trust the math" to keep a true ledger of trades and account balances of the Bitcoin network but that's not the same as trusting in the value of bitcoin. The determination of overall trust is not what's secured with Bitcoin as the ability to screw unwitting rubes out of their 'investment in cash for nothing' so far has a winning track record for success in the reported 'misadventures'.

We have several types of trust with bitcoin that IMO must be all present at high levels for it have a long term future and wide acceptance.

My best to worst in grades.
1(B): Trust in rules, are the protocols open , apply to everyone and robust.
"Trust the math" applies most here, there are cracks that people have used to steal money but that's not unique to Bitcoin.
2(D): Trust in history, are deposit/withdrawal logs open, transparent and legally useful in disputes.
It currently almost impossible to track a skilled thief or even determine if malfeasance or stupidity is the cause of massive losses. You can track every transaction back to the first but it only tracks digital signatures not an entity. This is seen mainly as a positive for proponents until their money vanishes into a digital black hole or is used as a conduit for cybercrime ransom demands like cryptolocker.
3(F): Trust in value.
This is currently more in the realm of faith and religion because at this point in the short history of Bitcoin my read of the 'true believers' is that they are in the 'what doesn't kill us makes us stronger' phase.