back to article Australian central bank says 'speculative mania' and crime fuel Bitcoin

The governor of the Reserve Bank of Australia has opined that cryptocurrencies are most useful “to those who want to make transactions in the black or illegal economy, rather than everyday transactions” and concluded that current enthusiasm for the instruments therefore “feels more like a speculative mania than it has to do with …

  1. Pete 2 Silver badge

    What goes up

    > cryptocurrencies are most useful “to those who want to make transactions in the black or illegal economy, rather than everyday transactions”

    Although with Bitcoin's current wild fluctuations in value ... or at least: cost, it isn't much use to anybody for making transactions.

    When a "currency" is rapidly gaining in value buyers don't want to part with it. And when it is rapidly losing value sellers don't want to accept it.

    1. Martin Gregorie Silver badge

      Re: What goes up

      At a guess a lot of the pressure toward using crypto currencies for electronic payments is coming from the US of A and their antediluvian banking system.

      We simply don't need crypto currencies for payments here: within the UK we can use FastPay and CHAPS. Within the European SEPA area the IBAN uniquely identifies destinations at the personal account level and seems to be about as quick as FastPay in the UK. Australia and NZ have similar systems to FastPay and, IIRC, had them first. We also have the choice of using SWIFT or PayPal for quite a wide range of international transfers.

      But in this area the US still seems to be the poor relation: where we can use CHAPS for the high value private transaction when we buy a car or a sailplane, the Americans still seem to rely on paper, with a bank Cashier's Cheque seemingly the medium of choice, but its SLOW - relies on snail mail to get it to the seller and then apparently weeks or longer for the cheque to clear and the money to find its way to the seller's bank. With the time all this takes its small wonder there are several fraudulent games that take advantage of the delays in the system.

      I've asked Americans if they can't speed things up by using PayPal, but answer came there none, which is odd since, when I sold a radio to a US Gliding Club earlier this year, they suggested PayPal as the best payment option. We used it and "it just worked" (TM).

      Apparently this is all a hang-over from the '30s depression and its aftermath, when the Feds came down heavily on US bankers, and split the banking system up so nothing was too big to fail, but boy did they make a mess: when I worked in NYC in the mid '70s I had to deal with the US banking system and it was horrible: my account was in a 5th Ave branch. I had to go there to get cash despite that bank having a branch where I was working on Long Island. Big contrast with the UK and NZ, where I don't remember EVER not being able to draw cash from any branch of a bank you had an account with.

      1. Mage Silver badge

        Re: What goes up

        Crazy USA mostly doesn't use IBAN.

        I've written a check/Cheque in years. Yesterday was first time in over 10 years I even saw one.

        Only advantage of Bitcoin is anonymity. It's too slow and ANY truly distributed to public cryptocurrency can't scale to a fraction of the transactions needed. The only workable level is bulk batch transactions between banks, but what does that do that IBAN doesn't do today?

        Most German eBay sellers use IBAN in preference to PayPal.

        It lets people put money in your account but not take it out. From 2008 it's the preferred method for 3rd parties to make lodgements to Ulster Bank customers.

        Was Bitcoin actually designed as an elaborate ponzi scheme?

        1. Mycho Silver badge

          Was Bitcoin actually designed as an elaborate ponzi scheme?

          Bitcoin was designed as an inflation-proof currency, and it achieved this goal.

          What people don't generally discuss is that, just like you'd be dead without cholesterol, with no inflation whatsoever your currency will be very unstable.

        2. Anonymous Coward
          Anonymous Coward

          Re: What goes up

          "Only advantage of Bitcoin is anonymity."

          What anonymity? All transactions are public and the first fancy blockchain visualization tools start to appear. If you can pin a name (or even just an exchange) to a public key, you can work from there and apply legal pressure or a $5-wrench.

          Tax fraud investigators will love bitcoin. I'd expect exchanges to be regulated in a way that they'll need to provide a register of their public keys to authorities and keep internal records to link transactions to customers.

      2. TheVogon Silver badge

        Re: What goes up

        "is coming from the US of A and their antediluvian banking system."

        Or rather from the 2 trillion dollars a year that the US black market is estimated to be worth...

  2. Velv Silver badge
    Boffin

    “electricity used in the process of mining the coins are staggering”

    The electricity used in the process of mining NEW coins is staggering.

    Mining new coins is like Quantative Easing (or printing money), adding new money into the economy. Bitcoin was deliberately designed with a throttle to maintain some control as the economy grew.

    1. Mage Silver badge

      Mining new coins

      It's not at all like QE or a State printing money. Or like mining. There are a fixed number of possible coins and anyone rich enough to buy the computers somewhere with cheap electric beats everyone else. The cost of coin production rises as there are less left.

      It's more like a mechanism in a Ponzi scheme. Inherently it's harder to get extra coins as "people join", price will rise. It will burst because you can't actually have loads of people trading with them and who can afford to convert any sizeable quantity to US$, GBP or Euro if more people want to cash out than buy in?

      Once the peak is reached or confidence is lost the crash will be very dramatic.

      The problem conventional money is only irresponsible governments and lack of anonymity for non-cash. Bitcoin actually creates problems and it turns out complete anonymity is only needed in dictatorships (democratic countries need a warrant) or by criminals.

      1. Adam 1 Silver badge

        Re: Mining new coins

        Ok agree that the inevitable crash will be pretty spectacular. I don't think the cost of production rises because there are less left. It rises because there are more people mining. The rate of discovery is fixed across the whole network, so more miners means you have to invest a lot more to find them.

        The real trick is to not pay for those computers and electricity. Think MitM JavaScript injection of miners, or even malware. Can your rig compete with a botnets of 100,000+ exploited "security" cameras?

        But anonymity is not just a state thing. It is also corporations tracking every possible data point. Just imagine what "BI" that visa has on you? And how they use it to market to you? And how they could sell that information, either individually or in aggregate. I do not wish to be profiled by companies who profit from figuring out what marketing I may respond to. And that is leaving alone the whole can of worms about the degree to which governments in what we might think of as free countries apply the concept of warrants.

        1. technoise

          Re: Mining new coins

          Adam 1: Ok agree that the inevitable crash will be pretty spectacular. I don't think the cost of production rises because there are less left. It rises because there are more people mining.

          I may have got this wrong, but I am under the impression that it is not a matter of supply and demand - I think that it becomes harder because of the maths of probability: the chances of mining a new coin gets less and less the more are mined, and so it becomes computationally harder to get a guaranteed income stream. For this reason I think it is still worth having a go mining, even with a poxy level of processor power, as you may still luck out.

          Am I right?

          1. Shart Tank

            Re: Mining new coins

            "I may have got this wrong, but I am under the impression that it is not a matter of supply and demand - I think that it becomes harder because of the maths of probability: the chances of mining a new coin gets less and less the more are mined, and so it becomes computationally harder to get a guaranteed income stream"

            It becomes harder to mine the more mining power the network has. It does not depend on the number of mined coins. The network adjusts the difficulty to keep an average rate of one block in 30 minutes.

            The only way to increase your mining payout is to increase your relative share of the mining power. If all miners would agree to switch of half their miners, energy consumption would drop but so would the difficulty of the mining process.

            1. Sorry that handle is already taken. Silver badge

              Re: Mining new coins

              It becomes harder to mine the more mining power the network has. It does not depend on the number of mined coins.

              The block reward halves every 210,000 blocks, which is about four years. This doesn't make mining more difficult in itself but it absolutely does make it more difficult to earn the same number of bitcoins, even if the network hashrate doesn't change. It's also means that if you know how many coins have been mined, you can easily determine what the current reward is. The reward began at 50 and has halved twice so far and the next halving will likely occur in less than three years.

              The network adjusts the difficulty to keep an average rate of one block in 30 minutes.

              One block is mined every 10 minutes on average. Because the mining is a bunch of random busywork, you might have two blocks mined within a few seconds of each other, or no new blocks for an hour or more. The difficulty is adjusted every 2016 blocks, which is two weeks at the average block discovery rate, but is generally shorter than that in periods of mining power growth. If the network falls in a heap at some point, you have to wait until the end of the current 2016 block period to adjust it, which could take some time...

  3. The Nazz Silver badge

    The best currency conversion service i've ever received

    Back in the early 80's just about every normal main bank had a branch in our town. Problem is that they all shut at 3.00pm every afternoon, Mon to Fri. Forget about Sat and Sun.

    Picture then, skiing in the mountains, it's after 3.30pm and the instructor pulls us all over into a small clearing in the woods. "Right then, who wants local currency?" Two and a half times the official rate and open on Sundays too.

    No digital, no pay by bonk. Though a couple of the group well may have paid for one. Lol.

  4. Spanners Silver badge
    Big Brother

    I just like the idea

    I like the idea of having a little money that "they" don't control. If I needed to send something to someone on the other side of the world/Country/town when the banks are closed.

    No I'm not a terrorist. I might just want to pay a plane ticket home for a friend in the middle east, or a Christmas present for a nephew "down under" or a kebab for a mate in Aberdeen. It's just an easy method of doing it. If "they" want to track it afterwards, they can. It's too trackable for anything dodgy. Anyone who tries to use it for illegal purposes is a total wally!

    And, hey, if the £200 I put in 18 months ago has grown a lot, I don't mind!

  5. DougS Silver badge

    It is only useful for crime or large transactions now

    With the transaction fee now at $20 and still climbing, you aren't going to buy a cup of coffee or a wireless router with bitcoin.

  6. heyrick Silver badge

    feels more like a speculative mania

    Uh, wasn't that half the reason for the Banking Collapse of 2008?

    1. Yet Another Anonymous coward Silver badge

      Re: feels more like a speculative mania

      No that was the well regulated and prudent high street banks backed by the prudent and well regulated central banks and a prudent chancellor of the exchequer

  7. Adam 1 Silver badge

    it isn't so black and white

    Some of the analysis is spot on but others is, er, clouded by the remit that the RBA has to keep inflation in its target band. They do this by raising or lowering the cash rate (that banks can borrow overnight), which has a flow on effect on the retail rates that we pay for things like home loans. If inflation is too high, the cash rate goes up, banks use it as a cover* to raise retail rates by the same. Paying more on your mortgage means you have to not spend as much on other things. The converse is equally true.

    They might have a hammer but it is a sledgehammer. Since the GFC and subsequent mining boom collapse, the economy has been in a bit of the doldrums, particularly in the mining states. They predictably responded by dropping the cash rate. Us mugs predictably responded by taking out ever increasing mortgages for the same housing stock because we see house prices doubling over the last half dozen years. This drives speculative investment (particularly those trying to get their money out of China buying units off the plan and then just leaving them empty, a strategy that has been paying 10%pa+.)

    Governments of both sides have abrogated their responsibility here (although at least the current opposition is calling out the elephant for negative gearing and capital gains tax discounts that act as a perverse incentive to speculate on property, even if it is just political expediency). That leaves us with the RBA and their sledgehammer in the meantime. But forgive me for calling out the self interest of the RBA here. The concept of not being able to manipulate the cash rate and have an effect on the economy no doubt keeps them up at night. So they criticise cryptocurrency as some illegal activity enabler and suggest that honest folk should be rather using some product that hasn't even yet launched? Didn't really think that through did they?

    But they also interchange the terms bitcoin and cryptocurrency. He should know better. Bitcoin is too slow for many use cases, wastes a tear jerking amount of electricity and can't scale enough to work as a replacement for other systems, but these are due to the design of the Bitcoin algorithm itself not due to cryptocurrency as a general concept.

    *These days, most of the funding comes from international markets so whilst a 0.25% cash rate increase does raise costs for the bank, it isn't the whole 0.25% that it appears.

  8. AussieITGuy

    So much Education still needs to be done

    The current "Bitcoin" has done massive damage to the original vision of crypto - "A peer to peer payment system". Of course the RBA looks at the current "Bitcoin" and says prices are volatile and cannot be used. The current fees and transaction times on BTC are completely ridiculous. Online stores like Steam" and others dropping BTC because of the fees and cost of business.

    This is why the fork in August created Bitcoin Cash .. actually delivering TODAY a low cost peer to peer payment system. Not waiting for someone to invent the Lightning Network and "bolt on a fix" to BTC. Do it today .. send $100 of BTC to someone .. out the other end spits $25 ..days or weeks later ! Do the same with Bitcoin Cash BCH and you get your $100 minus a penny nearly instantly ! But I digress ...

    Banking peer to peer transactions is being actively solved today by Ripple. Banks can adopt this technology today and start saving shareholders massive costs. They don't have to use XRP as a liquidity, but if they do then the cost savings are again increased.

    These bigwigs who have bought into "Crypto is bad" need to education themselves !

    Bitcoin Cash is the real Bitcoin

    1. Loyal Commenter Silver badge

      Re: So much Education still needs to be done

      "Do it today .. send $100 of BTC to someone .. out the other end spits $25 ..days or weeks later !"

      A slight misrepresentation perhaps?

      The nature of the blockchain means the hashing difficulty is tuned so that the time between blocks is approximately 10 minutes. In practice, as more mining hardware is added, the actual block time is usually a little under ten minutes.

      To confirm a transaction, the number of blocks required is usually six (which makes a cryptographic attack against the blockchain, for instance to double-spend, impractical). In other words, if you send someone BTC, they will usually see it in less than ten minutes, and be able to spend it in less than an hour. Not days, and certainly not weeks.

      Yes, the value is volatile, but it doesn't crash by 75% in an hour. You might find that $100 is $85 when it gets to the recipient. On the other hand, it is equally likely to be $125.

      On the other hand, if I do a bank transfer, it can take several hours or days. If I give someone a cheque, they have to pay it into their bank, and then it will take around a week before the funds are cleared.

      The advantage of the blockchain that I can see, is sending funds overseas. I don't know about you, but if I want to transfer £10 to someone in Ireland, my bank will charge me an addition £9.50 for the privilege.

      The transaction fee for bitcoin may currently be 'around $20', but it is also worth remembering that the transaction fee is actually optional, and can be set at any amount (it goes to the person who mines the next block, and that person doesn't have to include any transactions, so if your fee is low, it may not get included until several blocks later).

      1. Anonymous Coward
        Anonymous Coward

        Re: So much Education still needs to be done

        "In other words, if you send someone BTC, they will usually see it in less than ten minutes, and be able to spend it in less than an hour. Not days, and certainly not weeks. ... also worth remembering that the transaction fee is actually optional"

        Quite theroretical. How many Bitcoin transactions did you have to wait for in the past weeks?

        https://chain.so/ currently shows about 170k pending transactions with an average age of 103 hours. Transactions that have to compete for space in the small 1MB blocks. Miners prioritise those transactions with the highest fees. "Underpaid" transactions can linger indefinitely without ever being confirmed.

  9. Anonymous Coward
    Anonymous Coward

    "speculative mania and crime fuel Bitcoin"

    ....and a generous dollop of DERP.

  10. rtb61

    Whoa, wait there partner. Do not compare the government owned and controlled reserve bank of australia http://www.rba.gov.au/ with that hugely corrupt private for profit scam that is the US Federal Reserve (insanely they allow the rich to lend imaginary money to the US government, who than pays it back with real money out of the tax payers pocket, profit margin virturally infinite, turning nothing into something, 0 into infinite wealth).

    Crypto currency is ponzi currency, the scam is to grind at least half the coins before opening it to market and the idiots who buy in become you salesforce to turn nothing into something, much the same as the US Fed, most likely where they got the idea.

    1. splodge

      "...Whoa, wait there partner. Do not compare the government owned and controlled reserve bank of australia http://www.rba.gov.au/ with that hugely corrupt private for profit scam that is the US Federal Reserve ..."

      From http://www.rba.gov.au/about-rba/governance.html

      "...The Reserve Bank of Australia is an *independent* central bank with responsibility for monetary, financial system and payments system policies, and other financial matters..."

  11. rmason Silver badge

    It's all gravy

    It's all gravy while it's pretend money rising on a graph.

    There are a few bitcoin wallets with staggering amounts in, it'll only take one or two of these to convert to real currency by selling up to cause big problems.

    Those with 10BTC will finds the value drop sharply when those with multiple 1000's of BTC decide to sell and convert to actual currency.

    Didn't those random, somehow-related-to-FB, american twins claim to have something like 1in3 of all of them at some point? I'm sure there are a few hefty wallets in Russia and Asia too.

    Edit to add:

    http://fortune.com/2017/12/04/winklevoss-twins-bitcoin-billionaires/

    it appears they invested $11m ish into bitcoin that's now "worth" a billion.

    Imagine the movement when they decide they'd like that billion to sit elsewhere.

  12. NBCanuck

    Speculating

    Bitcoin started out as a virtual currency, but now it is more like stock than anything else. While the initial value was from people who believed in the original vision, that is not what is driving the price.

    10 People who have bitcoin want to protect their investment or make a profit

    20 Bitcoin holders hype bitcoin.

    30 Hype triggers people to buy and the price goes up.

    40 People see the price going up buy it.

    50 GOTO 10

    These are not people seeking to use it as a currency, these are people hoping to buy something now and sell later at a profit. Holders, especially late adopters, are at risk if the hype ends, the price stops going up, and people rush to get out before the price drops. And it will. And once it hits the new floor the cycle will start all over again and begin a new rise.

  13. Jediben

    At the end of the day any of these currencies represent nothing but electricity consumption and cpu cycles performing calculations that (as far as I have ever been able to ascertain) have no real world practical application. They aren't folding proteins for medical science, they aren't scanning the stars for SETI, they are just making big numbers. Why would that have any value?

    Can anyone explain what value it adds aside from improving my employer's DUOS bill profits to electricity suppliers?

    1. gr00001000

      The value of US dollar is heavily based on confidence and reserve currency status based on US Gold reserves, rather than the IOU value of gold in the vaults.

      The value of Bitcoin is based on confidence in proven cryptographic hash calculations and the confidence in the difficulty of such.

      The US dollar is heavily transacted digitally.

      Bitcoin is entirely digital.

      The US dollar is preserved by US hegemoney, some gold reserves, currency float valuation and US Securities.

      Bitcoin is preserved by CPU power and limited supply.

  14. kyza

    View BTC as a non-liquid, limited commodity rather than a currency and it makes a lot more sense.

    'Mining' is a very literal term - as the maximum available quantity is reached, it becomes increasinly expensive to extract both the resource and value from that resource.

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