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Bitcoin The Almighty Buck

A Rebuttal To Charles Stross About Bitcoin 396

Posted by Soulskill
from the opinions-are-like-cryptocurrencies dept.
New submitter buddha379 writes "Over the holidays we discussed a story from SF author Charles Stross called 'Why I Want Bitcoin to Die in a Fire,' just as Bitcoin's price collapsed on news of the Chinese government's cautious approach to the fledgling internet currency. Well known economist Paul Krugman quoted the piece in a NY Times blog post called 'Bitcoin is Evil'. Now, with U.S. regulators reaffirming their hands off approach, U.S. companies embracing it and prices surging again, Bitcoin Magazine returns with a rebuttal called 'Why Charles Stross Doesn't Know a Thing about Bitcoin.' The article notes that like many other popular pieces, Stross' story seems to 'completely miss the point on why Bitcoin is a revolutionary concept.'"
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A Rebuttal To Charles Stross About Bitcoin

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  • by ElementOfDestruction (2024308) on Wednesday January 08, 2014 @05:52PM (#45902249)
    http://slashdot.org/index2.pl?fhfilter=bitcoin [slashdot.org]

    Over the last few months, we've been averaging a little more than 1 Bitcoin story every 2 days. Please - please, stop accepting every submission that has the word Bitcoin in it. At this point, I'd almost like them to start covering the 2016 Presidential Election. Enough.
  • by DiSKiLLeR (17651) on Wednesday January 08, 2014 @05:53PM (#45902261) Homepage Journal

    So what? Why does the price of bitcoin even matter? Bitcoins strength lies in its ability to be used as a payment processing network - and at a fraction of the cost of traditional payment networks (visa, mastercard, paypal, SWIFT, etc).

    Everyone is obsessed with the price of bitcoin (and therefore comparing it to a ponzi scheme because of its price) and treating it as a speculative investment scheme or get rich quick scheme. This is actually very detrimental to bitcoin.

    But no. Bitcoins power lies in using it as a payment processing network not its price. It does need some more price stability, however, so this crazy speculation needs to stop.

  • by Anonymous Coward on Wednesday January 08, 2014 @05:55PM (#45902275)

    How about we shut the fuck up about bitcoin for a month? 2-3 posts a day for almost a year. Enough is enough.

    I appreciate the technical contributions and decentralized authority ideas the protocol brings. (I dream of a blockchain based DNS system, login/ID system that can't be corrupted or subverted by violence or legal threats pointed at a host or host organization)

    A currency scheme with inevitable built-in deflation and massive windfall for lucky early adopters is, however, as stupid as it sounds. It's already fallen victim to the exact kinds of price instability and fraud/scheming that we expected to see. Libertarian blowhards, still, don't seem to think that those "business killing" regulations have any purpose despite the evidence presented right in front of their noses. They're either chronically naive, think they're supermen that are immune (How's your favorite bitcoin exchange working out for you? Closed? Huh, aint that a bitch), or are the crooks themselves.

  • by ackthpt (218170) on Wednesday January 08, 2014 @05:58PM (#45902295) Homepage Journal

    As we've seen, all a government needs to do is make a statement about support/regulation and the price drops in half.

    Every other currency is also vulnerable to govt manipulation - What exactly is it you don't understand about this Federal Reserve printing money to buy assets with, which convinces you the fiat currency call The US Dollar isn't being manipulated like a hand puppet?

    People continue to accept the dollar has worth, because to come to the sudden realization that it's only worth something because someone else who accepts it also subscribes to the believe it has value is a stressful eye opener. Bitcoin is no better or worse, it just lacks the physical manifestation of a piece of paper or metal.

  • by Anonymous Coward on Wednesday January 08, 2014 @05:59PM (#45902311)

    You're partially right, but the vast majority of bitcoin users are speculators, gamblers and hoarders. It is not primarily used for transactions. Until this changes, which it probably won't, it is an electricity-wasting ponzi scheme.

  • by viperidaenz (2515578) on Wednesday January 08, 2014 @06:01PM (#45902333)

    But it's not a good payment network if the value of the payment are not stable.

    The network exists to 'mine' coins and process transactions. It's cheap because there is a payout for participating in the network split two ways, you get to mine coins, which are worth something and you can charge transaction fees. If there is little worth in the coins, the network will either be tiny and easier to take over and control (if you control the majority of the processing power, you control the entire network) or the transaction fees will increase.

    You are right though, New Zealand is the place to be.

  • by gmuslera (3436) on Wednesday January 08, 2014 @06:16PM (#45902441) Homepage Journal
    It is being used as plain money, becoming just a speculative bubble, but its potential is far more than that. The technology is good enough for other uses, like Twister [slashdot.org], there is where its value resides.
  • Deflation (Score:5, Insightful)

    by American AC in Paris (230456) on Wednesday January 08, 2014 @06:17PM (#45902451) Homepage

    From TFA:

    Bitcoin is more of a hybrid system than a true deflationary system. The gold standard is considered deflationary and Bitcoin is often seen as the digital equivalent of gold. Gold has a limited supply, so it is scarce, just like a digital currency. But real gold can only be subdivided so far. It can only be chopped up so far before it’s nothing but dust. Bitcoin has no such limitations. Theoretically, it can be subdivided into fractions of a coin almost indefinitely, growing as needed with people’s demands. Its current limitation is eight decimal places. Even with only 21 million Bitcoins, that’s still 2000 trillion of the smallest unit. The protocol is designed to be upgradeable, so if we ever need to divide it further we can.

    The problem with a deflationary system is not one of divisibility. The problem with a deflationary system is that the value of a given amount of currency is basically guaranteed to increase over time, as the total amount of possible currency has a hard limit--by design, in Bitcoin's case. Unless human civilization starts becoming less valuable as a whole (which is BAD), this is basically inevitable.

    That you can chop your Bitcoins up into Nanobitcoins doesn't change the fact that the currency will simply continue to increase in real value. That's like saying you can make a ten-ton boulder less heavy by crushing it into pebbles.

    That this is advanced as a serious counterargument to deflation should tell you everything you need to know about the author(s) of this piece.

  • by PopeRatzo (965947) on Wednesday January 08, 2014 @06:24PM (#45902503) Homepage Journal

    Bitcoins strength lies in its ability to be used as a payment processing network

    Wrong. Bitcoins' strength lies in the starbursts in the eyes of it's biggest proponents, who will gladly and patiently explain to you how they'll reform the monetary system, end poverty and make them fabulously wealthy.

    Nothing is stronger than a True Believer, especially when they are neo-libertarians on a mission from Ayn.

  • by Anonymous Coward on Wednesday January 08, 2014 @06:29PM (#45902549)

    From the article:
    "Nobody has the final say on what economic system is the best. Economists can’t even agree on basic assumptions, which is why they argue endlessly."

    That's not a rebuttal. That's a refusal to engage a serious point.

  • by TheRealMindChild (743925) on Wednesday January 08, 2014 @06:31PM (#45902577) Homepage Journal
    They mine for transaction fees
  • by CitizenCain (1209428) on Wednesday January 08, 2014 @06:43PM (#45902681)

    I don't understand the bitcoin hate.

    Really?

    It's not that hard to understand... then again, I'm a bitcoin hater, so maybe that's why I see it as easy to understand... let me try to fill you in.

    1) Enough already. I hear so much hype about it, it's almost as bad as the never-ending election coverage I have to suffer through for 18 months before the elections. I know about it, am not interested, and would rather not see reminders about it every-fucking time I blink.

    2) It over-promises and under-delivers (at least as reported on in every story I read, and implemented in the real world). A world changing innovation that will revolutionize currency and break our dependence on evil national governments and usher in a new era.... except that it won't because it's so fundamentally broken on so many levels.

    3) I would love to see a viable cryptocurrency take off and break or loosen the hold that evil leviathan government has over the world today. The reality of Bitcoin, however, is that it is a bubble/ponzi scheme/lottery that enriches the lucky few early adopters at the expense of public trust in cryptocurrency, and once the Bitcoin bubble has come and gone, the odds of a fair, viable cryptocurrency being widely accepted by the public go way down. The fact that such a badly broken system is what's going to be equated with all cryptocurrency by the public and the media shatters any hopes I have of actually seeing a meaningful adoption of purely digital, non-government backed currency transactions for the foreseeable future.

    We are literally on the verge of an era where the technology exists to break governments of their iron grasp on currency (and therefore the world's economies), but instead of seeing that happen, I get to read a bunch of stories about this technologically brilliant ponzi scheme that's going to poison public opinion against that happening.

    And all so some lucky fucks (who aren't me) can get rich on the Bitcoin bubble. What's not to hate?

  • by wbr1 (2538558) on Wednesday January 08, 2014 @06:54PM (#45902815)

    Bitcoins strength lies in its ability to be used as a payment processing network

    Wrong. Bitcoins' strength lies in the starbursts in the eyes of it's biggest proponents, who will gladly and patiently explain to you how they'll reform the monetary system, end poverty and make them fabulously wealthy.

    Nothing is stronger than a True Believer, especially when they are neo-libertarians on a mission from Ayn.

    Of course, because nicely formulated ad hominem is an excellent logical rebuttal.

  • by ShanghaiBill (739463) on Wednesday January 08, 2014 @07:00PM (#45902875)

    But it's not a good payment network if the value of the payment are not stable.

    The price fluctuates widely because it is thinly traded. As it becomes more popular, the price will stabilize.

  • by Anonymous Coward on Wednesday January 08, 2014 @07:06PM (#45902911)

    >Of course, because nicely formulated ad hominem is an excellent logical rebuttal.

    Libertarians are immune to logic and even common sense so what does it matter?

  • There is no reason to think that. It has no floor, no control, no way to slow wild swings. Without those 'brakes' BitCoin, any currency really, can swing wildly on pure emotional mood of the day.

  • Re:History of Fiat (Score:2, Insightful)

    by DanielRavenNest (107550) on Wednesday January 08, 2014 @08:07PM (#45903401)

    We have run plenty of experiments with government-run fiat currencies. Every single one, without exception, has become totally worthless, or worth a lot less than when it originally started. In the 100 years since the formation of the Federal Reserve, the US dollar has fallen in value by a factor of 23 as measured by the consumer price index ( ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt [bls.gov] ) , an average rate of -3.2% per year. Many nations do worse. For example India has had an average inflation rate of 7.5% over the last 50 years, Argentina has varied from zero to 40% per year over the last 20 years. If bitcoin can improve on this record, it would be a good thing.

  • by Anonymous Coward on Wednesday January 08, 2014 @08:12PM (#45903423)

    Bitcoins strength lies in its ability to be used as a payment processing network

    Wrong. Bitcoins' strength lies in the starbursts in the eyes of it's biggest proponents, who will gladly and patiently explain to you how they'll reform the monetary system, end poverty and make them fabulously wealthy.

    Nothing is stronger than a True Believer, especially when they are neo-libertarians on a mission from Ayn.

    Of course, because nicely formulated ad hominem is an excellent logical rebuttal.

    In this case it actually is a valid point, because a large part of the value of any currency is based on how many people have Faith in it. Thus, their character is actually part of what determines the value of the coin, and is thus a fair target for attack.

  • by Richy_T (111409) on Wednesday January 08, 2014 @08:44PM (#45903607) Homepage

    Wait a second. Someone else paying for stuff is what taxes are about.

  • by iserlohn (49556) on Wednesday January 08, 2014 @08:44PM (#45903611) Homepage

    In the situation you're describing, all you're getting rid of is SWIFT. Banks processing Bitcoin payments in your situation can still create Bitcoin money through fractional reserve banking. Basically same as the gold system, but Bit-gold. There is nothing really innovative if you use Bitcoin that way.

    If retail transactions are actually done on the Bitcoin network however, things get a bit more interesting, but the Bitcoin network will never scale to those transaction volumes.

  • by iserlohn (49556) on Wednesday January 08, 2014 @08:49PM (#45903629) Homepage

    But is Bitcoin payment processing really that cheap?

    Disclaimer: I started mining Bitcoins using the official client with CPUs. However, I don't really buy all of this blue-sky "to the moon" Bitcoin hype. For me it's more of a cool concept to test and mess around with.

    Although the Bitcoin concept is revolutionary - if you use it as a payment network - as you can get rid of banking and payment processing industries, with such a peer-to-peer architecture, you have scalability issues that limit the amount of transactions that can be processed. Aside from the elephant-in-the-room technical limits (with the current 1MB blocksize, Bitcoin can process 10tx/s max. The VISA network can process a max of 25000tx/s) , you also have the question of why using Bitcoins is any better than current methods for the customer or merchant.

    Fully decentralized peer-to-peer filesharing was hot back in the day because there was no digital content available on the net. It was also very slow on the completely decentralized systems. Now that the content industries have caught on, most people prefer to use those offerings (Youtube, Netflix, Spotify, etc.), due to the convenience and speed of those services.

    With Bitcoin, it is the other way around. We have a very well developed retail financial services sector. You can pay people and businesses easily through many different means. The payment processors charges a comparatively small fee for commercial transactions - usually around 3%, and gets lower as volumes increase. Customer don't see this at all as credit card fees are paid by the merchant. From a customers point of view, why would I pay in Bitcoins, if I can much more protection by paying with a credit card? If you don't have any bitcoins, you will have to do a fiat-bitcoin conversion and then the merchant does a bitcoin-fiat conversion back for stabilty? That kills the values proposition of low rates. The spread for the two conversion will already be close to or over the 3% you pay your current payment processor. Not to mention the hassle. You can introduce a processor like Coinbase to optimize the process (and also increase transaction performance by keeping local transactions off-net), but then you've just introduced a middleman that will also charge you fees.

    Wiring money overseas will cost customers a bigger fee, but this fee is usually fixed, so batch transfers are usually done. Furthermore, for people with frequent Forex needs, you can open an account with a dedicated Forex company that will give you much better rates and you can probably save on some fees with them as well as they have many local bank accounts in different countries accepting and sending money.

    So all-in-all no, I don't think it's all smooth sailing for Bitcoin and once people wake up to the limitation of this particular and novel implementation or decentralized digital currency, it will be better for everybody involved. We will start asking the right questions (eg. is if possible at all to create a decentralized crypto-currency network with similar performance to commercial payment processing networks) and maybe incorporate some of the better ideas from Bitcoins to more practical applications.

  • by viperidaenz (2515578) on Wednesday January 08, 2014 @10:38PM (#45904151)

    So it's not your BTC then. You're beholden to them to keep it all safe, with no repercussions if they fail to do so, since there is no law or regulations.

    That's trust.

  • by dbIII (701233) on Wednesday January 08, 2014 @10:47PM (#45904199)
    We don't hate you for that. We hate you for recruiting more marks into the pyramid scheme for your own gain.
  • by jcr (53032) <jcr.mac@com> on Wednesday January 08, 2014 @11:47PM (#45904379) Journal

    The "value" is, in general terms, approximately the cost of production and distribution.

    That sounds suspiciously close to Marx's brain-dead "labor theory of value".

    The value of anything is determined by its buyers and sellers. You can spend all you want on producing statues of Alexander Hamilton made out of compressed manure, but that doesn't mean they're worth the shit you put into them.

    -jcr

  • by Sycraft-fu (314770) on Thursday January 09, 2014 @12:21AM (#45904473)

    If you read posts from many Bitcoin supporters, you will discover that they actually believe that deflation is a good thing. They think that deflation will make the money in their piggy bank worth more, and thus they like it. They have a poor understanding of the overall economic impact so they believe it would be positive. They also tend to conflate the ideas of saving and hoarding so while Bitcoin encourages the latter, they believe that's the same thing as the former.

    What's even funnier to me, is that these are often the same people that get mad about "the 1%". What they fail to realize is that deflation is something that would benefit the rich and the very most and harm the poor the very most. The more money you have, and the less debt you have, the better deflation would be for you. If you've got a massive bank account, more than you need for the rest of your life, deflation is great. You keep all your money in cash, spend it only as you need, and the remaining money gets worth more. You don't need to invest it or take any risk, just keeping cash increases your value.

    On the other side, if you owe money, deflation is a big problem. A loan becomes increasingly difficult to pay back as your nominal payment stays the same, but the real value that you are having to pay out increases. It works to keep you poor and to make it more difficult for you to ever become financially self-sufficient.

    Really what it comes down to is many Bitcoin supporters just have a very poor understanding of economics. They don't understand the downsides of Bitcoin, because they actually believe many of them to the upsides. Really, Bitcoin is a dream for the rich robber barons. They would love something outside of any government regulation, something that works to make the rich richer, something where there's no recourse if they take money from you, no chargeback that kind of thing. It really isn't something that the rest of us should be that interested in seeing.

    The idea of a crypto currency is an interesting one, but Bitcoin is very poorly implemented from an economic standpoint, if nothing else.

  • by Cyberax (705495) on Thursday January 09, 2014 @01:03AM (#45904599)
    So both parties A and B have to use the same ban... erm... "ledger". And of course, this ledger then would have to be regulated and policed - you don't want your money disappear if the ledger decides to pack stuff and move into a nice tropical country without extradition treaty with the US.

    Oh, and of course this ledger would be able to "borrow" your money for a little while. Since you won't be able to access it while it's on the deposit account.

    And at this point, there are no advantages to using bitcoins versus regular currencies.
  • by mestar (121800) on Thursday January 09, 2014 @08:33AM (#45905867)

    Yes it does. Bitcoin needs up to 3.6 million dollars of fresh new suckers daily, for the price of Bitcoin to remain the same. Why is this so? Because miners have real costs that have to be paid in non-Bitcoin currencies, so they have to sell some on the exchanges.

    Why 3.6 million, or perhaps a large chunk of that? Because, mining is basically a perfect competition situation, nobody can stop new miners from joining, and new miners will stop coming only when the cost of one Bitcoin more than the price on the exchange. This guarantees that mining will be a low profit business, and most of the value will be lost to electricity.

    Who pays for that (large chunk) of 3.6 million daily? New suckers.

  • Re:History of Fiat (Score:4, Insightful)

    by AthanasiusKircher (1333179) on Thursday January 09, 2014 @08:59AM (#45906025)

    You've correctly pointed out that the only difference between gold and yak tears is that people are irrationally attracted to gold. But you haven't shown that there's any fundamental difference other than scarcity between gold and fiat currency.

    Just because a government can inflate "fiat currency" doesn't mean that they must. Theoretically, the U.S. federal government could pay off all of its debts tomorrow, shut itself down completely (absolute minimal spending to satisfy Constitutional requirements), and then shut down all the presses and coin minting. If they still continued to claim the "legal tender" status for the dollar and only accepted dollars for tax payments, guess what? Dollars would start to become scarce. People would hoard them.

    In practice, no government would EVER do this deliberately. Why? Because it would result in a deflationary spiral that would be economic suicide. Instead, most adopt a policy of moderate inflation for the reasons I outlined in my original post. Sometimes it gets out of control for random economic reasons or because governments can't rein in spending. Note that hyperinflation generally is not caused by governments printing money to pay debts in their own currency; it is generally caused when governments owe money in another currency, and as they print more, the value of the local currency plummets in relation to other international currencies, forcing an inflationary spiral to pay debt.

    The U.S. debt, on the other hand, is almost all owed in dollars. That's a fundamental difference, though governments can still be stupid enough to ruin economies if they try.

    Anyhow, the primary point you've failed to understand is that a precious metal standard does not prevent currency inflation (nor government running the "press" to make more money), as can be learned from reading any history. When governments run out of gold, it's not like everyone throws up their hands and says "Oh well, gold is a scarce resource, and we're out! So... oh well, let's just shut things down!"

    No -- first governments switch to less precious metals, historically silver was important, but in the ancient world, currencies were even issued in things like giant iron "coins" (which corroded), just to keep up the spending.

    But the next step is seigniorage [wikipedia.org], where governments start mixing in crap metals with precious ones or simply declaring that coins in a particular metal are worth more than the value of the raw metals. In good economic times, this may work okay. In bad economic times, it too can lead to an inflationary spiral.

    You can believe all you want in some "magical" powers of a gold standard, but people will always find ways to screw up things economically with currencies, particularly if things get dire enough. Using gold or any other scarce -- but ultimately small-valued -- item won't fix that. The moment you convert actual "wealth" in useful goods (food, textiles for clothing, essential tools and weapons, etc.) into currency, you're taking a risk and trusting your wealth to the whims of others in power who have more currency than you do. It's only if you have the power and/or control the actual supplies of goods that you can have any guarantee of value.

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