back to article Korean cryptocoin exchange $30m lighter after hacking attack

A weekend breach and theft at a Korean digital currency exchange is being blamed for a drop in the price of Bitcoin. Coinrail confirmed on Saturday that it had been the victim of a hack and as a result coins were lifted from its systems. 해킹공격시도로 인한 시스템 점검중입니다. 일부코인(펀디엑스,NPXS)이 확인되었으며 추가적인 코인피해가 있는지 여부를 확인중입니다. 추후 자세한 사항은 …

Anonymous Coward

Welcome

To the wild west.2.0

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Anonymous Coward

Re: Welcome

> To the wild west.2.0

East, technically.

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Re: Welcome

>> To the wild west.2.0

> East, technically.

Well, technically also West of the (previous) California Gold Rush...

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" and moving all of its stored coins to an offline cold wallet while it investigates the incident."

I'm amazed that they keep anything more than absolutely necessary online.

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Cryptocurrency bubbles bursting could well bring down real economies, as could bigger hacks.

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Speculative bubble bursts, economy fine

Betting on BitCoin is flat-out gambling. The money people know this, and bet "appropriately." That's why there are such amazing price gyrations against government-backed currencies.

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No chance it will bring down real economies. Cryptocurrency is a rounding error on a rounding error vs the size of financial world.

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Unhappy

Re: Speculative bubble bursts, economy fine

here's a thought: follow the money.

If you want to know who cracked the bitcoin exchange, and made bitcoin value TANK, look for someone(s) who just made a killing by SELLING SHORT on bitcoin...

or some other such quick-turnaround scheme that would indicate possible stock manipulations (or insider knowledge of commodities, yotta yotta).

that's right - I'm suggesting that the purpose of the crack-in was to drive DOWN the price of bitcoin, because THAT is how you REALLY make money off of this. Bitcoin value dropped more than $10k from what I heard on the radio, now less than half its previous value (from what I understand). That's a hell of a price change per bitcoin. Careful short sale or pump/dump tactics would make a killing off of it.

Just like stock/commodity manipulation. who'd a thunk it?

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I don't think so, the total value of all cryptocurrencies is too small to have that much impact on the global economy. Of course the real value is zero so the sooner we get to that the better.

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Re: Speculative bubble bursts, economy fine

Bitcoin has lost more than half its value since December, but lost far less over this hack. If there was a hack of one of the major bitcoin exchanges then you'd see its value fall by half (or more) overnight, this was a hack of a minor exchange involving a minor cryptocurrency.

Theoretically hackers could short bitcoin to make money when they hack an exchange but I really doubt it - chiefly because I'm not sure there IS a viable way to short bitcoins. In the financial world you short something by borrowing shares of stock, which you then sell and hope to buy back for a cheaper price tomorrow. Good luck trying to find someone willing to let you borrow and sell their bitcoins!

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Re: Speculative bubble bursts, economy fine

Also, if you're hacking an exchange to steal its Bitcoins, why would you want to reduce their value further by shorting the currency?

It'll be interesting to see if the SEC find anything in their probe on Bitcoin price-fixing. Which is much more likely to be people trying to drive the price up. Not something that's hard to do, given how small trading volumes are. Low trading volumes being the reason prices are so volatile anyway...

Although, there is now a way to effectively short Bitcoin. Since you can now trade Bitcoin futures on CME, which is a proper exchange dealing with a large chunk of the global futures market.

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Re: Speculative bubble bursts, economy fine

You are assuming they held the stolen coins.

More likely you'd sell them immediately, use the funds to short the bitcoin market and using a margin account dramatically increase your profit.

Kind of brilliant actually.

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Happy

Shorting Bitcoin

Shorting Bitcoin is easy. I do it on IG Index.

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Insurance?

So does this mean the "storehouse" lost the "money" and the owners who put the "money" in the "storehouse" are the ones that lose out? In a real bank, there is insurance and generally the depositors don't lose out when there's a bank robbery.

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Re: Insurance?

Probably no insurance. Much like gambling tokens in a casino.

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Re: Insurance?

A properly regulated exchange would have to have some of its own assets to cover such losses, as well as insurance and proper security. But this is Bitcoin, so there isn't any proper regulation.

But then opposing regulation (and taxes) is what many Bitcoin users want.

Whereas in regulated financial markets, when someone gets past the security you'd have a good chance to track the stolen money / stocks / bonds. And of course a lot of the work isn't done on the open internet, which surely makes security a bit easier.

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Anonymous Coward

Re: Insurance?

A properly regulated exchange would have to have some of its own assets to cover such losses, as well as insurance and proper security. But this is Bitcoin, so there isn't any proper regulation

It's coming, though.

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Bitocoin is for fools and why should we care when a fool and his money are easily parted?

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Do you use that worthess bits of paper in your pocket that only have value because a queen says she promises it does?

Perhaps we should go back to bartering.

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We need a bigger blockchain. At the exchanges.

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Anonymous Coward

It's the standard planned Exit Strategy

for all Ponzi Scheme Cryptocurrency Exchange operators.

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Re: It's the standard planned Exit Strategy

Or even if it's not planned, it's such an obvious move to make. You've got large amounts of a hard to trace commodity with value. You're not regulated or audited terribly well, and they tend to be quite small organisations So if profits collapse, or something goes wrong, or even if there's a genuine small hack that's going to destroy confidence in your company, what do you do? Well you could just shut-up shop. But the temptation is going to be there, to make off with the stock and say "a big boy did it and ran away."

That was what happened to all the banks when I played EVE Online. Even the honest ones. They got the admin wrong, screwed up, or just got bored. Then as often as not, took the rest of the money and ran. Something EVE encouraged of course...

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Bitcoin hits $10 - its a bubble, its worthless. Sell it now before you lose all your money.

Bitcoin hits $100 - its a bubble, its worthless. Sell it now before you lose all your money.

Bitcoin hits $1000 - its a bubble, its worthless. Sell it now before you lose all your money.

Bitcoin hits $10,000 - its a bubble, its worthless. Sell it now before you lose all your money.

We all know where this is going

Bitcoin hits $100,000.........

There is s finite amount of this asset and its value, year on year only goes up. FIAT currencies are printed at will, backed by nothing but debt.

But its a bubble, its worthless. Sell it now before you lose all your money like a good little boy.

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Your mistake is calling it an "asset". It is no such thing. Just because there's a limited quantity of something doesn't mean its value goes up, or that it has value at all. Otherwise all the collectible plates and other crap that's sold on late TV "limited quantities, act fast!" would be selling for thousands of dollars on eBay. I'm sure fools made the same arguments you are making about rare tulip bulbs a couple centuries ago. Tell me why rare varieties of tulip bulbs, of which there are a very limited supply or in some cases only one in the world, should not even today be worth more than a bitcoin of which there are millions.

There are some suckers who current believe bitcoin has value, but it'll be a footnote in history once the hype cycle dies and bubble investors move on to the next big thing. It isn't even useful as a currency any more due to the ridiculous transaction fees - it is now only viable as such for criminals or tax evaders - the microtransaction argument people were making back in the day faded when they realized transaction fees were its Achilles heel. No one is buying cups of coffee with it anymore. Perhaps someday something that bears some resemblance to bitcoin will gain broad acceptance, but that will be because a government or some large corporation like Facebook provides backing.

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RobertLongshaft,

Fiat currencies are backed by governents and the whole economy that uses them. Which is why they've been so successful throughout history. But even some of those fail. Bitcoin is truly backed by nothing but faith When faith wobbles, governments can try to step in to save their currencies (see the Euro for a recent example) - there is nobody to save Bitcoin.

Bitcoin's also a bubble. Because people are backing it as an investment, but there's no possible return but other investors. And that very process has destroyed its use as a currency, as transaction costs are now so ludicrous.

But bubbles pop when they're ready to. This is what makes them so dangerous. The people that see it, get told they've been "proved wrong" and so ignored. Until they're finally proved right later. I think it was UBS that sacked their CEO partly for refusing to buy all those nice mortgage backed CDOs in the last decade - and thus forgoing juicy profits. Did they apologise and re-hire him in 2008 after he was proved right?

To quote John Maynard Keynes, "the market can stay irrational for longer than you can stay solvent."

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Assets and commodities

"Bitcoin value dropped more than $10k from what I heard on the radio,"

Don't trust what you hear on the radio then. It's down about $500 from it's recent price. It's down 10k from it's highest price ever.

You'll notice that financial reporters will give this sort of detail, since it's important. You'll hear "the pound dropped TODAY versus the dollar" or "down from it's six month low, Brent crude is trading at $75 a barrel". Once a price movement is significant enough to make it mainstream, then you get the need to make silly numbers (lost 10k! Half it's value! 1145%!) sp you should always double check those figures.

"Your mistake is calling it an "asset". It is no such thing. "

It's pretty much exactly the definition of an asset. It's legally an asset where I live (NL) and you might well find it is one in your jurisdiction. It exists, it can be owned, people trade it, government taxes you on those trades. Bish bash bosh, it's an asset.

You are completely correct that scarcity alone does not make an asset have any value. In fact, almost all assets have no "intrinsic" value*, their value is entirely due to other people wanting them, and being prepared to exchange stuff for it. Gold has almost no intrinsic value (but might gain more if it could be used at a few hundred bucks per kilo), wheres platinum (roughly same price as gold) has multitude of industrial uses.

"(Bitcoin) It isn't even useful as a currency any more due to the ridiculous transaction fees "

Depends if you're doing 1-1 transactions or many-many. But yes, not much good for micro transactions**. But it is used for almost all transactions with other cryptos, in particular anything which doesn't have a USD pairing, It functions more as the "reserve" crypto, which all others are valued in. SO it's both as valueless as gold, and used for a similar financial purpose.

"Perhaps someday something that bears some resemblance to bitcoin will gain broad acceptance"

Nah, I doubt it. Using blockchain to make SWIFT more secure, or for making transactions to be settled sure, but currency and banking are national security issues, so decentralised lack of control is not really helpful features.

* base value is pretty much "does it solve any of my essential needs?" so food, shelter, clothing. Thus an investment property can provide somewhere to live, farmland can be used to feed yourself. It's the "stuck on a desert island" kind of thing

** between two wallets anyway. Transferring between two coindesk accounts is free and quick, and where most of my BTC based income gets paid into.

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Anonymous Coward

There are some suckers who current believe bitcoin has value

It's a mechanism for trading, and it's the trade (and the attributes like scarcity) that creates the value. That said, even currency doesn't have a value of its own, it merely has the value that everyone has agreed it should have. It's not money.

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Success of fiat

"Which is why they've been so successful throughout history."

What!!!!

Look, fiat is a very useful tool, but describing them as successful throughout history indicates a profound lack of knowledge of the subject. If your currency is the default world currency (by hook or crook) then you enjoy massive benefits, as you've got a magic checkbook.

For a start, almost every losing side in a war issued fiat directly or as bonds, and then defaulted on them when they lost. Article 14 of the US constitution I believe wiped all the debts issued by the Southern states during the civil war.

Many changes of power (French revolution, Russian revolution, Denmark in 1850) resulted in all existing sovereign debts being discharged.

In more recent times, Greece and Argentina have defaulted on their debt repayments, forcing people to take a loss. Even when issued in euros, there's no explicit guarantee of the German's to cover Greek debts.

"Fiat currencies are backed by governents and the whole economy that uses them."

And can also be fucked by other governments. Venezuela and Zimbabwe as recent examples. Both *had* an economy and have/had a sovereign fiat currency. Yet those currencies are not so successful, leading to printing and inflation that impoverished everyone who held their wealth in those currencies.

One of my crypto mining buddies is from there. You can mock BTC and ETH as being "impractical" but he's been feeding his extended family from the proceeds of his GPUs for several years now. Because the local fiat is worthless, and foreign exchange is heavily controlled by the government, having any access to USD makes you (relativly) very wealthy. Although in this case it's the difference between starvation and mild malnutrition.

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Re: Success of fiat

MonkeyCee,

Fiat currency and government debt are not the same thing. Many governments have defaulted on their debts, but their currency has survived perfectly fine. The people who lose out when someone defaults would lost out whatever currency that debt was denominated in. Though a loss of confidence in the government can be more serious.

Countries tend to keep their currencies. And even when they (country or currency) collapse, often create new ones and allow people to bring their existing holdings across (sadly often at a loss).

But a fiat currency will basically work so long as enough people believe in the continuation of enough of the institutions and economy of the country that uses it. It might not work perfectly, you might get inflation and deflation and exchange-rate fluctuations. But people will still continue to use it as a means of exchange and a store of value. It's only when trust completely breaks down, as it did in Zimbabwe, and looks like it has/will in Venezuala.

Even in Weimar Germany, the period of hyper-inflation only lasted a couple of years. And that's the most famous example of wheelbarrows full of cash that couldn't buy a sack of potatoes. By 1924-5, they'd got inflation under control again. It wasn't inflation that lead to the rise of Hitler, it was the unemployment and deflation after the 1929 crash that brought Hitler to power. A lesson often forgotten.

It's the deflation in Southern Europe (and consequent unemployment) that will bring down the Euro, if they don't sort their shit out pretty quickly. At minimum with a proper banking union and some sort of system to deal with government debt crises, though to make it work properly requires fiscal transfers.

Fiat currency came along, and despite many failures has supplanted all comomodity-backed ones.

Fiat currencies have also failed. But so have commodity-based ones. Spain found loads of silver in South America. Hooray we're rich! Oh shit, we have inflation, we're no longer rich. Help! The gold standard went wrong more than fiat currencies did. Which is why not only is it no longer used, but almost nobody serious suggests going back to it. Maybe we'll find something better in future, I'm no believer in "the end of history", but so far we haven't.

Crypto currency is just fiat money with nobody in control. OK, in Zimbabwe that control was a bad thing. But the Eurozone was saved by it. The disorderly collapse of that could cause a 1930s style global depression - governments do have their uses. Even if it was the bloody governments that created that particular disaster-waiting-to-happen themselves.

I don't know why you complain about seigniorage though. Sure the US government makes a bit of money from printing dollars. But it's not all that much, and that profit goes to the US taxpayer in government spending or lower taxes. What's your problem? All currency issuers get that benefit. The more they're trusted, the more they get. With the gold standard, that value goes to the gold miners. With Bitcoin it went to the original creators and the miners. The difference being, they didn't share it with anyone. I don't really see it as a relevant point.

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Re: Success of fiat

"Fiat currency and government debt are not the same thing. "

They are intrinsically linked. Specifically to the government bonds, which is what a sovereign default is. Refusing to pay your debtors for a specific loan is quite different to refusing to pay for a bond maturing. All fiat currencies are debt based. If it's not, it's flat rather than fiat.

It'll get waaay off topic to discuss how bonds and money work, but feel free to look it up.

"Though a loss of confidence in the government can be more serious."

If they default, then they've lost the confidence. If a government's bonds are not 100%, then there is a confidence issue.

We've had flat currencies before, and for quite long periods of time. Tally sticks in the UK for example. The creation of private central banks is what pushed us to using fiat, since it's all about borrowing and lending. The first central bank (Bank of England) took it's initial deposits from it's owners in tally sticks.

Fiat didn't just "come along" it was a deliberate creation to make bankers money, by lending to countries rather than individuals, and allowing governments to spend future tax revenue immediately. Once you're on the fiat tiger the only way to get off is to default, which can be made rather difficult depending who your bonds have been sold too (see Argentina).

Most people would actually be happy with flat rather than fiat currency, since it's a lot harder to inflate or deflate. The banks would not, and in general governments would not either, as it requires balancing of the books. It's also a lot harder to fight wars if you've got to pay for your rhiney toys upfront, rather than over the course of 70 years.

"Many governments have defaulted on their debts, but their currency has survived perfectly fine."

Any examples of this? Economies certainly survive (being based in the real world), but usually the currency takes a hit, and is often replaced or re-issued, which is very much a case of the currency not surviving.

"often create new ones and allow people to bring their existing holdings across"

But that's still a failed currency, and a default. Even when the government pays 99% it still counts as a default, hence why Greece has technically defaulted more times than it has truly defaulted*. In the same way as moving from a theoretical commodity based currency (gold standard, sterling) to a fiat one without a complete redemption and re-issuance is also a failed currency, although no-one wants to admit it.

"I don't know why you complain about seigniorage though."

Did I? Must have missed that :) I've not got a general problem with it, as long as it's useful. So seignorage from currency issuance is fine, since the smaller notes and coins can have negative seignorage. My issue is that I dislike hidden taxes and subsidies, and non-physical seignorage takes it's value from the current issuance.

I wouldn't characterise Bitcoin mining as seignorage, since it also does the processing of transactions. The same way bank fees or differences in interest rates between loans and deposits aren't seignorage.

"Sure the US government makes a bit of money from printing dollars. "

Not really. They make it ctrl-p dollars, printing currency is expensive :)

The main way the US makes money is petro-dollars. Hence my "magic checkbook" comment. The US issues dollars, and then requires that everyone hold them, in order to trade oil. Thus they never get redeemed, so you can keep on writing cheques on the basis that no-one is going to cash them, just pass them around.

If a country starts bucking this, then they are in for a spot of regime change, or if to big, then sanctions.

"Crypto currency is just fiat money with nobody in control. "

That's a contradiction. Fiat requires an issuer and controller, as yourself has specified several times in this discussion. The issuer can vary the rate of issue, and the controller can impose rules on the currency.

Depending on the crypto in question, some are certainly fiat (devs in charge), some are flat (like BTC) and some are a mix (masternodes). If the devs can issue more coins, at whim, without any restrictions then it's essentially fiat. If the rate of issuance is impossible to change, then it's essentially a flat currency. Flat doesn't require anyone being in charge.

"But the Eurozone was saved by it."

What? Nah bro :) Greece could have (and can) go to the wall and it should have little to no economic effect on the rest of the Eurozone. It was politically untenable, sure, but the same applies to the acceptance of amazing works of fiction known as the Greek public finances. The other EU governments took on the Greek debt (banks forced to buy out retail bond holders, then haircut on bonds, then governments bought out the banks' bonds) rather than allow Greece to leave the Euro.

It was a political move, in part to stop a precedent and then having Spain or Italy trying it, which could potentially wreck the Eurozone, and partly because there's a strong resistance to central control of the Euro by increasing the power of the ECB.

There are problems with all forms of currencies. The biggest one (IMHO) for fiat is that it's controlled by unelected central bankers who are incompetent (see various financial crises), corrupt (ditto) and unaccountable.

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even currency doesn't have a value of its own

No, currency has intrinsic value because the government says it does. I know that sounds stupid, but bear with me - a dollar will always be worth something in the United States, even if every store decided they would only accept gold, bitcoin or wolverine teeth, because taxes are payable in dollars alone. That power to tax is what gives fiat currency its value.

If you choose to live your life doing all your transactions in wolverine teeth, you will still need to trade those for dollars at some point in order to pay your taxes.

Note that this doesn't imply any value for the dollar outside the US. All the people in third world countries who conduct gray or black market transactions in US dollars do so because of the value created by the US government taxing its citizens in dollars, and the fact its citizens travel and do business around the world. If everyone thought like Trump and the US became isolationist, the US dollar would become much less attractive for those outside the US even if it maintained its value for US citizens.

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"Fiat currencies are backed by governments and the whole economy that uses them"

1. Government gets into debt, invents more money (ahem Obama) = inflation goes way up.

2. Government falls, paper currency = firelighters.

3. Economy fails due to war, famine, corruption, mass suicide of religious side of population due to discovery of alien life = paper notes can be used as firelighters or in Molotov cocktails. Metal coins can be used as shrapnel (bottlecap mines from fallout 3 comes to mind).

Vale in any currency whether fiat or virtual is always an agreed upon HUMAN construct that has no real value. How much is a Deutschmark worth today? Nothing. Unless its has collectors value which again is a human construct based on human wants, not needs.

Food always has a value as does shelter, water, freedom. We only use fiat currency or crypto currency as an EXCHANGE medium for what has true value to humans. Any currency, even leaves, can become worthless on a whim. It is true that long term established currencies will need a very long time to get to that point without any of those mentioned disasters but at the end of the day they are still worthless. Again how much is a Deutschmark worth? If I find 10,000 of them buried in a field, how much do I get?

Everything you own (other than food, freedom etc) only has value to YOU and those who want it for some reason. They can give you something worthless that has an agreed value in exchange for it, or simply rob you of it. Whether it is a pound or part of a bitcoin it does not matter, they are the same.

So stop deluding yourself and saying that fiat currencies are anything more than what bitcoin is. The whole bitcoin bubble argument is a fallacy that falls flat on its face once you realise that the only difference between bitcoin and fiat is age. Fiat is older so its critical vulnerabilities and worthlessness are hidden so those who are blinded by it and narrow minded never see any of it. Bitcoin is the same but due to its young age is essentially showing you what fiat is under a magnifying glass.

Its all the same stuff. There is no argument ti make here other than investigating if the exchange was at fault somehow.

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"No, currency has intrinsic value because the government says it does."

Really? Tell me how much a Deutschmark is worth.

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pedant alert...

"No, currency has intrinsic value because the government says it does."

Just to split hairs here (because I'm 99% sure you mean the same thing) you mean money rather than currency, which is a specific form of money.

The reason the money has value is because the government will only accept payment of it's taxes in that form.

The US goes a bit further, in that *any* transaction must be valued in dollars, and be potentially taxable (if you've gained them). So if you trade a chicken for a spanner, you have to agree a "fair" value for that in dollars (fair as in the IRS agrees).

The IRS views *any* crypto trade as requiring this, hence why it's very easy to make a net loss trading if you're in the US if you're not paying attention to when you losses and gains occur within a tax year.

Oh, and the US also requires you to use USD for any oil trade. Anywhere in the world. Hence why everyone has to hold USD reserves.

So much of the intrinsic value of the USD is that if you stop using it, then you might well end up ousted from your shiny gold palace and at the end of a rope.

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Re: Success of fiat

\MonkeyCee,

I don't think you understand this money thing correctly. Not that it isn't hideously complicated There's been a lot of nonsense talked about it since the great recession. For example, when I see the phrase "private central banks" that seems to be a warning sign that someone has taken on board too much of this stuff. Central Banks aren't private. They're owned/controlled by the government. The Bank of England started that way, and the US Fed is technically owned by its member banks, but as they're not allowed to sell those shares or choose who's in charge, or set the targets, it's basically a legal fiction of ownership.

Government debt and fiat currency aren't the same thing at all. Though many definitions of money do include government debt, along with bank deposits and various securities (depending on where on the scale you are from M0-M6). Your example of tally sticks, which were markers of debts owed by the monarch/treasury. Those were not a currency, though could be counted in some definitions of money. The currency was the coinage. A few English kings defaulted on their debts (or imprisoned their lenders), but what affected the value of the currency was kings like Henry VIII who massively debased the coinage.

Once you're on the fiat tiger the only way to get off is to default, which can be made rather difficult depending who your bonds have been sold too (see Argentina).

Again, you've misunderstood this. There is no fiat tiger. Fiat money is just a way of keeping score. Obama didn't print trillions of dollars, the Fed did QE. And not because Obama told them to, but because Ben Bernanke happened to be one of the foremost academic experts on the 1930s Depression - and that was his proposed solution. It had the benefit of having worked in Japan in the 1930s, so had been tested once. QE is not money printing. It might look the same, but it isn't, because it's designed to be reversed.

Argentina defaulted because their currency had already devalued, and they'd borrowed in dollars. So now they couldn't meet the interest payments. People didn't lose confidence in the Peso after the default. Once they couldn't maintain the fixed exchange rate, government default became inevitable. But the currency didn't devalue further after default, in fact it slowly increased against the dollar. This is because Argentina had an export boom in soya, and other agricultural products, and were no longer having to buy much foreign currency to service their debts. Meanwhile, at home people continued to use the Peso, and everything was fine - despite it having just been the biggest default in history. It was only the next government that then started to print money, break the independence of their Central Bank, and falsify the inflation reports. Which caused the huge inflation they're now dealing with, and did undermine confidence in the Peso.

Had Argentina not borrowed in dollars, but in Pesos, they'd not have had the same crisis. Firstly the government wouldn't have been able to borrow so much - they borrowed a lot under US law, because investors knew they couldn't default on it, or manipulate the courts. But also, when they went off the exchange rate peg to the dollar, their government debt would have devalued along with the currency (at least to foreigners). To everyone in the Peso economy, it would maintain the same value. Once you use a free floating currency, the feedback loop between government creditworthiness and exchange rate is mostly broken - and the exchange rate will be set by flows of money for trade and investment.

Similarly the Weimar hyper-inflation was because the government was printing money to service its huge foreign debt. What gave confidence in the currency again, was because they partially defaulted on that debt. And stopped printing money, sending so much money abroad and re-valued the currency. So no, a default need not affect faith in the currency itself.

Finally, you keep making a distinction between fiat currency and FLAT currency. Is there a language issue here? I've never heard of FLAT currency before, and quick Google gives me no clues either. It's 25 years since I studied economics, so is there some new terminology I'm missing? Is it a term common in crypto-currency circles?

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DuncanLarge,

If you find a pile of valid Deutschmarks you can probably take them to the German central bank and have them turned into Euros at the fixed exchange rate at which Germany joined. If not now, you were able to do so for several years after the Euro came in. There is usually a transition period with fiat currencies, when changes happen. It's rare that a fiat currency has disappeared completely. Those countries that are seen to have strong institutions lend that confidence to their currencies. And of course, if their people have to pay tax in it, then it has a value. Hyper-inflation is a sign of a collapse in that institutional framework - and can be reversed very quickly by a government that is believed to be doing something about it.

In fact your example of Obama sort of proves the point. Actually you're wrong in that QE isn't the same as money-printing. But even so, the US had a small amount of inflation, and everything pretty much carried on as normal. There was continuing faith in the national institutions, and the dollar pretty much maintained its value. A few people got very over-excited and yet I don't think inflation went much above 4%.

In your examples of civilisational collapse, gold may have little more value than fiat currency. Who'd give you food for useless gold, when they're starving? You'd be much better off with barter. Whereas good honest paper can be used to start fires. If civilisation collapses, everything goes out the window and you can't plan for it. For all other forseeable situations, your dollars will probably be fine. Bitcoins could lose all their value tomorrow, or by the end of the year, or might be useful for decades / centuries. But they don't have any institutions to support them, and also nobody is forced to take them off you to pay their taxes. So crypto-currency is the digital equivalent of bank scrip from the 19th Century. Except without even the rickety 19th C bank to back it.

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I don't think you understand what a bubble is, RobertLongshaft.

You've just described one perfectly. They have no intrinsic value, no worth. None. The *cost* of them fluctuates, but that doesn't mean they are now magically worth that number.

Also, as this article demonstrates, they can simply vanish.

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I'm forever blowing bitcoin

They have no intrinsic value

I'd argue that nothing has an intrinsic value. Economists may use that terminology, but even in that restricted technical usage it is gibberish.

Value is subjective, not objective. Some people love Bounty bars; I, whilst liking chocolate and liking coconut, find that particular combination to literally make me gag. Some people think works of art by Picasso are wonderful, I think they're garbage.

When I say all that, economists counter by saying what they mean by "intrinsic value" is the cost of the labour used to produce the item. Which is still bollocks. That's an intrinsic cost which is not necessarily related to a subjective value. For example, take the Vega Spectrum: if they ever manage to produce even a working prototype that will have been at great cost but the item will have little value.

Anyone who thinks that anything has an intrinsic value, whichever way they define it, is severely deluded. So deluded, in fact, they probably think bitcoin is intrinsically worth a lot of money.

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Re: I'm forever blowing bitcoin

People buy bounty bars in order to eat them. The intrinsic value in the fact that you can eat them. Maybe you personally don't like them, that's fine, but there are enough people that do to make it worthwhile for Tesco to trade in them.

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Re: I'm forever blowing bitcoin

handleoclast,

The Labour Theory of Value isn't mainstream economics. I think that's from Marx, if I remember correctly.

But you're obviously right that nothing has a fixed value. However nothing's absolute. A £5 is worth nothing if confidence in the UK currency collapses. But that's not happened in a very long time, which of course boosts confidence. But you can destroy a currency, as Zimbabwe did, and Venezuala are doing. So currencies are based on everyone agreeing they're worth something, which remains true until it doesn't - often quite suddenly.

An apple though has a use. Until it goes off. As does steel or gold. You can argue what their value is, but they have an intrinsic worth of something. As do Bounty bars you heathen! Although in my case the dark chocolate ones, I'm not really bothered by the others.

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Re: I'm forever blowing bitcoin

" is intrinsically worth a lot of money."

Just a side note on intrinsic value. It's actually a bad thing when money (or any subset, such as currency) has intrinsic value. It should function as a medium of exchange only, else there will be oddities in the process.

Coinage is the classic example, many coins are worth more for their metal content than their face value. Since they also can cost more than their face value to make (materials plus tooling) you'll just be losing value. There are laws against this, but any time copper or nickel shoots up in value, then certain people will hoard nickels, dimes and tuppences (the ones without a steel disc in them). While it's unusual you can still find silver coins in the USA in regular usage. Always nice to get more back in change than you paid :)

So it's important that money doesn't have an intrinsic value, otherwise it buggers up a lot of the workings. That we use something inherently worthless as a way of ascribing value is very confusing.

In much the same way that when you understand how money supply works, either you should feel worried ("what will happen when the peons discover this?") or angry ("wait, ctrl-p and there's now more money?"). There's a good reason you don't get it explained in school, except with regard to Weimer Republic.

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Re: I'm forever blowing bitcoin

People buy bounty bars in order to eat them.

Or to sell them. If I ran a sweetshop I wouldn't refuse to stock them on the basis they make me gag.

The intrinsic value in the fact that you can eat them.

Nope, that's a subjective value, not an intrinsic one. There are people like me, who can't stand them. Others who love them so much they'd happily pay double the asking price. And many others in between, such as some who would buy them if only they were a little cheaper. A diabetic might shun them, unless he/she is hypoglycaemic.

All trade depends upon people having different subjective values for things. It doesn't work, otherwise.

Maybe you personally don't like them, that's fine, but there are enough people that do to make it worthwhile for Tesco to trade in them.

At a price which is not an intrinsic value but one chosen to maximize profits. Too high and the infrequent sales mean they're wasting shelf space; too low and they're selling them at a loss.

As I said, things have intrinsic costs, in terms of the labour needed to produce them, but no intrinsic value whatsoever. Value is subjective so cannot be inherent in an object. There may be a delusion, shared amongst a large number of people, that something has a specific value, but that is merely a delusion. At best the Tesco price is close to an average perceived value.

How often do you buy something you otherwise wouldn't because it's on special offer? How much would you pay for a bottle of water? How about if your water supply is out of action and the water company has just alerted you it will take at least 4 hours to fix it? Surely it's the same item in both cases, with the same intrinsic costs to produce it, but in one case you value it a lot more.

What value does a potato have? Well, if you were trapped on Mars it might be life or death.

Intrinsic value does not and cannot exist because value is purely subjective.

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Re: I'm forever blowing bitcoin

The Labour Theory of Value isn't mainstream economics.

The Labour Theory of Value is as flawed as Intrinsic Value. More so, in fact.

I think that's from Marx, if I remember correctly.

I think you're correct, too. Heinlein used it as an example of something Marx got very, very wrong. Heinlein's example was of apples, sugar, flour and water. In the hands of a good chef you get a delightful pie; in the hands of an incompetent you get an inedible mess. The incompetent may have spent more time than the good chef, so according to Marx the inedible mess is worth more than the pie.

Labour Theory of Cost is workable (not necessarily useful, but you don't get obviously insane answers: it did cost more to produce the inedible mess than the delightful pie). Labour Theory of Value is nonsense (you should pay more for the inedible mess than the pie).

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Another exchange that left millions sitting around in online wallets rather than storing the majority of them offline and then moving them online as needed. Sure the hack may have still occurred but they might be talking of losses of tens of thousands rather than millions if they had not been lazy and kept everything online.

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Yay cheaper coins!

Buy buy buy...

BOUGHT! :)

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