Cleaning up the Bitcoin act The story so far is that a little-known hacker hobby currency called Bitcoin suddenly came to the notice of the press, then to the notice of regulators, and finally to the notice of hackers. Believers are reluctant to moderate their hype; regulators and lawmakers want to either shut the whole thing down, or at least tax it; and …
Can I just take this opportunity to ask "what is the point of bitcoin?"
It it's anonymity that surely that will all be lost once regulation comes along. Without regulation the legality is questionable which then raises questions of genuine value. It also opens up the potential for systemic abuse and market manipulation. I think I'll stick with the real stuff.
One of the points is to have a currency which does not permit inflation.
There are only a finite number of bitcoins which can be created, ever.
(Assuming it all works as planned of course.)
This would have the effect of rewarding savers and punishing borrowers; it's a matter of opinion whether this would be a good thing or not, I would say it is.
Deflation really isn't nice. Yes it punishes borrowers. But the trade-off isn't just borrowers vs. savers, it's also borrowers vs. spenders. Spending is what currencies are fundamentally for (a method of exchange), so penalising the main purpose isn't such a hot idea. See a decade of Japanese economic stagnation for details...
Also, punishing borrowers in the long term equally punishes savers. Where do you think savers get their returns from? It's the interest paid by borrowers. Borrowers can also grow the economy, by using that borrowed money to create things - you wouldn't want to be without them.
So what you're describing is actually an investment opportunity, where you hope that scarcity will cause the price to go up. Not a currency. It's an important difference.
Investments need an intrinsic value. Currencies don't - they're a generally accepted means of exchange. Investments have to be worth something, and in holding them, you're hoping that other people will pay more in future. Bitcoins are worthless (they're just numbers), and they fail as a means of exchange, so what are they for? Perhaps a game, or a scam?
Oh, and the other thing you need to make either a currency, or an investment work is confidence. Confidence that there'll be some value in the future. Otherwise it's useless as either. For that you need some sort of transparency, which I suspect is fundamentally opposed to the goals of some of the Bitcoin boosters.
"Punishing borrowers" is to doom an economy to irrelevancy. Credit is the lifeblood of any modern economy; no credit means very strict limits on economic activity as the cost of capital becomes far too high.
Of course, given the extreme volatility, the built-in deflation is a rather moot point. Even WITHOUT the built-in deflation, you'd have to be completely nucking futs to take out a BTC loan. If you did, you'd run the chance of owing many times more (in USD/EUR/Gold/whatever) equivalent at the end of the loan term. Who'd EVER take out a $1000 USD-equiv. loan if there was a decent chance you'd owe the equivalent of $10,000 or more at the end of the year?
Bitcoin was not designed with the sole purpose of anonymity. Think of bitcoins like you would cash, person to person transactions are kinda anonymous, the person's identity isn't linked to the currency as with credit cards or Paypal.
What has become popular are bitcoin exchanges, where $/¥/€/£ are exchanged for bitcoin. This is where identity is needed as people are using existing identity linked & regulated payment methods to buy and sell bitcoins.
Bitcoin as a currency/payment method has the potential to topple the big payment institutions, but not the credit cards (as their main business is credit).
What tax?
If you buy bitcoins with, say dollars, and subsequently sell them for dollars (or yen or pounds) you will have to declare the profit you make. You don't have have to say you made it from buying/selling bitcoins.
If you get 'paid' for something in bitcoins then it is no different than getting paid in goats or gold. You have to assign the equivalent monetary value to the payment and declare that monetary value on your tax return. The monetary value is the value at the time of payment, not at the time you fill in your tax form.
Bitcoins, like goats and gold, are assets and as such do not have to be declared on a tax form. It is irrelevant, to the taxman, whether the value of this asset rises or falls.
Don't trade with existing currencies, let it grow at it's own pace and you can forget about currency speculators who are IMHO complete bottom feeders.
Short selling is and will always be a crock of shit.
You need a bank, somewhere secure to store coins which can handle reversible transactions to prevent fraud/theft, yet issue coins for anonymous transfers if required. Home computers are a stupid place to store untraceable currency.
* modern interpretation of a 'couple' essentially meaning a random number, although staff in fast food resurants will interpret a request for 'a couple of sugars' as a 'handful'.
I do think speculation is far too large a part of modern financial and commodity markets, but there are good reasons for having it. Putting it at the most simple, speculators, buying and selling, mean that when "real" deals are done, there is always somebody willing to buy or sell. And futures trading, both "short" and "long", allows the "real" traders to reduce the risk of shifts in the market.
It was the Baltic Exchange when I was involved in trading some grain futures, as a farmer who was growing the stuff.
A Bitcoin exchange is nothing like that. There's no core reality. And that is a danger. But exchanges need speculation.
Lots of people "have been in contact with regulators" regarding approval of Bitcoin, but none of them tell us what those regulators say.
European Regulators will tell them they have to register as an electronic money issuer in the same way that Paypal is, have €1m of money in reserve, and in addition, have reserves equal to the amount of money outstanding.
When I've suggested that before, people say that Bitcoin is completely different to Paypal or the various prepaid credit cards out there, and the regulations cannot possibly apply to Bitcoin. Actually, Bitcoin is exactly like how electronic money was originally envisaged. The regulations were extended to allow "server based" systems to operate as well, and server based systems are now the only type that actually exists.
In the US, Paypal is registered in each state as a money transmission agent. Presumably the requirements are a bit different in each one, but I doubt very much that Bitcoin meets those requirements.
Look at MTGox for example. There is $27m going into their exchange every month, but the withdrawal limits of $1000 per user per day means there almost certainly isn't that amount of money coming out of the exchange. Are they registered with the Japanese financial regulator to hold client money? Do they capital adequacy returns that are subject to regular audit? Yes you can point to Madoff and say that these don't always work, but that doesn't mean you solve the problem by getting rid of these regulations altogether like in the days of Charles Ponzi.
The Bitcoin rent-a-crowd will of course be along shortly to tell me how wrong I am, and to vote me down, as they always do, but I still maintain that Bitcoin is a cross between a speculative bubble and a Ponzi scheme. In the future, people will read about this in their history books and wonder how anyone could possibly be stupid enough to be taken in by it. I want to put it very clearly in the public record now that I was not taken in.
Bitcoin is nothing like a Ponzi scheme. Such a scheme involves deceitful money transfers from one class of investor to another class, which are disguised as authentic income or capital appreciation. Bitcoin is 100% open, so there is no deceit, and it doesn't involve transfer payments. Bitcoin's capital appreciation is not something else in disguise, though it's definitely possible for it to be a speculative bubble.
It may not succeed, but there is nothing to be "taken in" by. The history books will tell you that the creator(s) came up with an ingenious way to get round the double-spend problem and had a good insight into what money is (unlike some in the anti-Bitcoin rent-a-crowd). I'd like it to be on the public record that I think it's a work of genius and could necessitate rewrites of textbooks on the subject of what money is.
Disclaimer: nobody paid me to write this, nobody asked me to write this, it is my own words.
The Bitcoin bit is the speculative bubble. The trading exchanges are the potential Ponzi schemes if they don't have assets to back all the money deposited with them. The fact that there is no limits on deposits, but a $1000 limit on withdrawals makes me suspicious because it creates the sort of conditions where Ponzi schemes can thrive.
Is power to the people. It's not just a libertarian thing. Do you dislike having a bunch of bankers, central or otherwise, manipulating you and ripping you off, then making you eat the pain of the economic downturn their foolishness caused? The control of money is a huge source of unequal power. Bitcoin is money with nobody in control.
It's power to the people who control the software.
If no one controls it, then who do you vote out? Power to the people is that you can vote out the ones who screwed up. Whatever the causes of the economic crash we just had, the value of our currencies didn't drop to zero, because we had someone in control to stop it.
When the Mt Gox thing happened, the value of the bitcoin became zero.
How is resetting the value of their money to nothing power to the people?
The economic downturn came about because the regulators failed to do their job properly, and the assets that backed all the investments weren't as good as they said they were.
Do you solve this problem by having absolutely no regulation whatsoever, and having absolutely no assets other than a few magic numbers backing your investments?
Before throwing out the bathwater, it is always a good idea to make sure there are no babies in it.
...are the present and expected real goods you can purchase with it. Just like other fiat currencies.
But perhaps you are thinking of the junk mortgage derivatives, unregulated and not backed? Bitcoin doesn't change people's ability to make and trade - or regulate - derivatives markets, any more than if they were denominated in $. However it would starve banks of the cash of savers, who win under deflation simply by holding onto "cash" in their digital wallets. Potentially it could eliminate the concepts "fractional reserve" and "a run on the bank" and thus "too big to fail". Banks would lose their ability to nationalize risk via government guarantees. They would be forced to become more conservative. So the effect here would be good too.
As long as each coin, and the value it represents, exists uniquely, nobody loses.
As soon as fractional reserve banking is allowed (and there's nobody to stop it) each coin will be spent multiple times simultaneously in the form of loans. A bitcoin bank can go bust if the loans aren't repaid, and the depositors lose their money. With no regulator, the little guys have even less protection from the fraudulent, the arrogant and the incompetent.
Mortgage derivatives were backed by the homes of those people who borrowed money on the mortgages. That sounds like a pretty solid asset backing, but it wasn't. Still better than nothing though.
Pounds and Euros are backed by the fact that HMRC will accept them as payment of tax liabilities, legal tender laws force people to accept them as settlement of debts, the fact that the Bank of England and European Central Bank control the supply of them to maintain value, and the assets and tax raising abilities of the government.
Bitcoins are backed by the idea that a greater fool will come along later and buy them off you. That isn't backing at all because nobody is forcing them to accept bitcoins.
>>>>If you don't want to use Bitcoin then don't use it. You don't need to vote other people not to be able to use it in order for you not to have to!
I've no problem with the existence of Bitcoin. I simply don't like seeing people fleeced for real cash, assuming anyone actually buys the hype, rather than just 'investing' in bitcoin in the hope of finding a still greater fool to take it off their hands later. So I choose to post, to counter the rubbish about 'power to the people' or 'fractional reserve banking' from people who learned their economics from Youtube, rather than reality.
Sure only one exchange went down. But with no-one in control, all the exchanges being unregulated, AND total market transactions being so tiny, it's only a matter of time. One market manipulator could put huge sell orders on most exchanges. Or just crash one, buy up all the coins on that, then sell them off on the others for full price.
As for your point about gold being similar to bitcoins, it isn't. It has uses. it has intrinsic value, due to shinyness, and uses in electronics. So it's always going to be worth something. It's clearly near the top of the price curve now, but unlikely to drop to nothing.
Also it has history on its side. It's been effectively a currency for millenia. It's an investment, with some aspects of a currency. Bitcoin is neither. You can't use it, and most people won't agree to accept it.
And that's assuming that there's a limited supply of bitcoins, and some criminal with a huge botnet can't just mint infinite amounts.
Gold is another speculative bubble that is due to crash at some point. I certainly wouldn't recommend buying it at the moment.
However, people don't just buy gold because they can sell it to a greater fool later. Some people buy it because it looks pretty and you can make pretty jewellery out of it. They also buy it because it doesn't corrode easily and can be used for electrical contacts.
So Bitcoin is the same as the notes in my wallet?
Who is to stop the people who run this scam from creating as many coins as they like for their own gain, the transactions are completely anonymous after all.
Anyone who dabbles in Bitcoin are either scammers or marks. If you're not directly involved with the generation and distribution of Bitcoins then you're the mark.
What's to stop people creating as many coins as they like? How about the public, open source, cryptography based Bitcoin protocol which was designed to do exactly that. You shouldn't express an opinion which is so clearly and utterly contrary to fact, it makes you look like a fool.
Our system has scanned your computer and found a virus called "open source, cryptography based Bitcoin protocol"
Click install and we will check your system.
You have been infected by """"BITCOIN"""" please insert "loads of money" as you will to become less wealthy is important to your freedom..
Money earned 18 years ago on the LETSystem I use is spendable today with a few dozen participants, typically second hand goods, domestic and garden services, lifts, jam, bread, garden plants, allotment produce, help looking after pets while on holiday etc. Those who want to 'sock it to the man' and cut the banks out of the loop should go figure what it takes to be able to issue and trade on IOUs based on reputation for fair dealing with friends and neighbours.
As far as tax is concerned, most of what we do is irregular social favours so isn't taxable; if I make my income as a teacher and sell a second hand bike or mend one in exchange for apples that isn't taxable. If I make a regular income as a bicycle dealer it is, and we advise regular traders to declare LETS on their tax returns on the same basis they would declare cash. When and if enough people want and do this, we could get the small proportion of what we trade exempted through minor tax law change if we can ensure local charities benefit enough in exchange, there's no particular reason why we shouldn't, and that really would 'sock it to the man' by enabling micro-economies to flourish without any state interference greater than an annual accounting audit to prove charitable and community benefits sufficient to gain tax exemption.
Bitcoins are good for crooks, swindlers and gamblers. The only good thing I can say about Bitcoin is that my spam volumes have gone down while the botnet herders reorient their capacity to mint Bitcoins. The apologists for Bitcoin all claim this job is done using custom GPU units in parrallel but they would, wouldn't they ? The idea that paid-for hardware and electricity is competitive for this purpose compared to stolen capacity is obvious tosh. We'll know that the Bitcoin Ponzi has collapsed when spam volumes start going up again.
You can tell that Bitcoin is irrelevant because governments take no interest in it.
The day it presents a serious competition to dollars pounds and euros will be the day it is crushed.
Any politician or economist will tell you why a government must control the (fiat) currency.
Barter (gold, LETS, etc) is another matter
You mean like how the lead programmer of the official software gave a presentation to the CIA on bitcoins? Or senator Chuck Schumer said bitcoins and silk road needed to be shut down?
And by crushed, do you mean like they are successfully stopping p2p file sharing or illegal drug use?
Of course they will tell you why they need to control it; because they want to control it.
The short seller is speculating that they can borrow a large amount of shares/ bonds/ bitcoins/ whatever, dump them on the market so the price will drop meaning that they can then buy them back at a lower price, return them to whoever they borrowed them off and make a profit.
It doesn't stabilise a market, it contribute to its volatility.
> The short seller is speculating that they can borrow
No. The short seller *has* borrowed.
It is naked short-selling if the seller has not yet acquired what he is selling; many of us would classify that as "fraud", but assorted excchanges seem to let them get away with it...
Short-selling has a place in markets - it permits traders to bet against the price of a commodity that they believe to be over-priced. Without short-selling, the price just keeps going up. Naked shorting, however, is a serious problem...
Vic.
To all of those complaining that BitCoins aren't real because they aren't asset backed may I ask whether you take cash?
Banknotes are not backed by assets and haven't been since we dropped the gold standard after the war.
Cash is worth something because people accept it in payment for goods and services. Exactly the same is true of BitCoin. Neither cash nor BitCoins have any intrinsic value and are essentially little different from each other in this respect.
Cash isn't backed by assets, and nor is Bitcoin.
True (sort of). But irrelevant.
Cash is backed by governments - and law (meaning people have to accept it for some things). And markets. i.e. it's a fiction we all agree to believe, which makes it true.
The problem is that Bitcoin isn't a currency. Firstly it's not widely accepted - which admittedly is solvable. But secondly, too many holders think it's an investment. They hope to hold stocks of coin, until the price goes up.
As a store of value it's rubbish, because it's not worth anything, it's not backed up by any credible authority (who could bail it out) - and there's no grounds for reasonable expectation that it'll be worth anything next week. But the speculators make it a rubbish currency.
Well, the designers made it a rubbish currency too, by building in deflation. High inflation is bad, deflation is also bad, a little bit of relatively predictable inflation can be good - so long as it's lower than interest rates. I guess they did it as a bribe, to get early adopters enthusiastic, but they've made that payment way too generous, and turned it into a ponzi scheme.
The Register 
Biting the hand that feeds IT
Copyright. All rights reserved © 1998–2024
