Monday, April 8, 2013

NYT on Bitcoins

Noan Cohen at NYT has an extensive report on bitcoins, here.

Two things of note.

1. This observation by NYT is very true:
If bitcoins become the dominant currency in some small niche of the world economy — that is, those people who do not want their transactions easily tracked or who want to send money back home from abroad — then they will become quite valuable indeed.
Whether this will ever occur is the big question. If it does, it starts to become money, rather than what it is now, a fluctuating receipt for money.

2. The article fails to mention the weak point of bitcoins, that is, the point of exchange between dollars (or other currencies) and bitcoins and vice versa. If the government make such transactions illegal, the bitcoin most assuredly gets obliterated---if the government acts before bitcoins are pervasive throughout the economy.


18 comments:

  1. "The article fails to mention the weak point of bitcoins, that is, the point of exchange of between dollars (or other currencies) and bitcoins and vice versa. If the government make such transactions illegal, the bitcoin most assuredly gets obliterated---if the government acts before bitcoins are pervasive throughout the economy."

    Not if bitcoin sellers accept gold. Sellers can just take the dollar bids from potential buyers, convert those bids to gold ounces at the prevailing market price, sell the bitcoins and collect the gold, then sell gold for dollars, which isn't illegal.

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    1. That doesn't change the fact that bitcoins are being used to obtain something else rather than held. Given the physical risks of holding bit coins, they will always tend to be limited to use in transactions. Pricing will tend to be limited to goods considered to be money or financial instruments. It also means easier replacement by an alternative.

      Not that it matters. They are still useful.

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    2. If the government allowed it to get to that point, the dollar would be for all intents and purposes dead.

      While possible, I don't think this will be probable. There can be no competition to fiat money or the fiat money dies, hence legal tender laws.

      Bob makes a very salient point about the exchanges. The government will do whatever it takes to make sure it can keep on stealing. It's life is at stake.

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    3. I agree. Countries with lax financial rules, like The Bahamas, would allow people to buy bitcoins, which could then be sold for gold to people in the US. The transaction costs would be higher, but stopping a virtual currency will be harder than many think.

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    4. Joseph, I think the risks associated with Bitcoins are smaller than the risks associated with dollars.

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    5. If virtual currency is so hard to stop, why was the US Online Gambling Industry so easily prohibited with a mere proclamation by .GOV?

      There are many was the US Government could hit exchanges, either virtually, or physically.

      Many people just don't understand how easy it is to block IP traffic. Please understand the internet was a DARPA project created to facilitate redundant communication sites in the event of a nuclear attack. TCP / IP is a government created protocol for government purposes. While you may think the internet is "Free Market" it is controlled by government controlled entities.

      China very readily censors the internet, as well as many other countries via the help of networking hardware companies like Cisco and Nortel.

      At this point in time, all BTC exchanges could be shut down by dropping any packets related to them at the major telecom hubs on the east and west coasts.

      Yes your "money" will still be there in virtual reality. You just won't be able to do anything but do P2P transactions. That'll be good enough to kill it.

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  2. The future of Bitcoin is ugly.

    The cypto-currency is a direct competitor to the national currency. This is prohibited by law in the Constitution, Article 1, Section 8.

    The IRS and Feds will start monitoring transactions converting back into the dollar, and will swiftly audit the users under suspicion of tax evasion, money laundering, financial fraud, and other offenses.

    No big businesses will ever accept Bitcoin for this very reason, and any business that does accept them will be raided and shut down by the Fed for fraud.

    This will cause a massive nosedive in the demand for the digital currency, sending the value and price down into the gutter.

    All the people left in Bitcoin will be broke, and face prosecution when they attempt to slip back into the dollar.

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    1. I think your post is a product more of fear than reason.

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  3. > If it does, it starts to become money, rather than what it is now, a fluctuating receipt for money.

    This "fluctuating receipt for money" now has more buying power than 42 other national currencies:

    http://www.foxnews.com/tech/2013/04/08/digital-bitcoin-currency-surpasses-42-national-currencies-in-value/

    Bob, I'm starting to look at you like we all look at Krugman. Bitcoin doesn't fall into an academic and preconceived notion of what "money" is supposed to be and it never will. It's still money. It's better than money because it's as private as the user wants it to be.

    I remember just last year an economist that I have great respect for said:

    "There are no such constants in the field of economics since the science of economics deals with human action, which can change at any time. If potato prices remain the same for 10 weeks, it does not mean they will be the same the following day. I defy anyone in this room to provide me with a constant in the field of economics that has the same unchanging constancy that exists in the fields of physics or chemistry."

    Love ya, Wenzel.

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    1. The reason Wenzel says it's not money is because there are very few people who wholly transact in bitcoin. You can't go to your local grocery store and buy with bitcoin yet. There is a very limited section of the world economy in which you can use bitcoin. People currently exchange bitcoin and dollars back and forth to buy items they cannot buy with bitcoin yet. That's why Wenzel says it is a "fluctuating receipt for money."

      Right now, it is -only- a medium of exchange. It has the possibility of becoming money. But in order for that to happen, it has to become far more widespread. It's not there yet.

      -Bharat

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    2. I can't buy groceries with gold. Are you saying gold isn't money? I'd say it is. I can buy bitcoins with gold and silver and buy gold and silver with bitcoins.

      Bitcoin is money, no matter the denials from entrenched academics.

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    3. Yes, gold is not money. It probably WOULD be money without government interference in all its forms but especially in the form of legal tender laws.

      That's why I get particularly annoyed when even libertarians say "gold is money" just because it historically HAS been money. Well-known individuals are occasionally loose with words (they are only human), but it has the unfortunate effect of creating misunderstandings in those who listen to them.

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    4. Also, if you continue to disagree with me, realize at this point it is just semantics. Bitcoin is not 'money' yet in the way Wenzel or I or Mises or Rothbard etc. would use the word. If you want to call it money with a different definition, feel free to.

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    5. Money is defined by the people that use it, not by the people that claim that only they know what money is.

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    6. No, according to Austrian Economics, a -medium of exchange- is a category based off of individual choice. If an individual treats a good as a medium of exchange in action, for example, trades some sheep for butter, he is doing so only in order to exchange the butter in the future for something else.

      Money is a medium of exchange that has come into widespread use. It is a somewhat loose definition; e.g., how "widespread" does it have to be before it becomes money? Clearly, though, by any reasonable standard, Bitcoin is not widespread. It is not used in daily transactions. It is used by a minority of individuals and has only recently picked up steam. But it may become money at some point in the future.

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    7. > Clearly, though, by any reasonable standard, Bitcoin is not widespread.

      Bitcoin is in wider use than 10 to 20 of the smaller national currencies. Are you claiming the national currency of Chad isn't money?

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    8. peculium.net, can you cite your source for that?

      And even if it is, is it widespread in the sense that the many individuals who use it can conduct most of their transactions in it? In other words, do they have to exchange bitcoin for some fiat currency money in order to satisfy themselves?

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    9. Bitcoin is an "opt-in" community currency:

      http://tinyurl.com/ce3nynr

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