Lion of the Blogosphere

Bitcoin vs real money

The previously biggest bitcoin bank is bankrupt, and nearly half a billion dollars worth of bitcoin are lost to hackers.

Some libertarians viewed bitcoin as money free from government interference, but it turns out that real government-sponsored money, stored at government-insured banks, is a lot safer and more practical.

* * *

Another problem with bitcoin is that you have to be smart to figure out how to use it. Can you imagine a typical prole using it? I can’t.

If government money is easier to use and safer, why would anyone use bitcoin? The only people who use bitcoin are: (1) libertarian geeks who have ideological reasons for wanting it to succeed; and (2) people who think they can make a quick buck by speculating in it.

Do real businesses like Exxon Mobil, IBM, or General Motors want to deal in bitcoin? I don’t think so.

Written by Lion of the Blogosphere

February 28, 2014 at 11:17 AM

30 Responses

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  1. Plus, the government could easily ban such a thing. Libertarians see it as likely that the government will print the dollar into oblivion but won’t ever think to ban the bitcoin, or, being ignorant of how the internet works, think that it somehow isn’t possible.

    fnlasnm

    February 28, 2014 at 11:27 AM

    • It’s the government’s ability to make money out of thin air that allows them to insure banks. It’s actually a feature of government-sponsored money and not a flaw.

      Lion of the Blogosphere

      February 28, 2014 at 11:29 AM

    • Libertarians basically invented the internet and I think pretty well know how it works. While not discouraging people to try novelty alternatives, Libertarians have been saying stay the hell away from bitcoin.

      rob

      February 28, 2014 at 5:46 PM

  2. What’s also interesting is the proliferation of bitcoin knock offs by the hundreds. Dogecoin is currently having a good time at Reddit as are others. Given the original’s open standard anyone with some time, seed cash, and tech know how can make one and start the easy early mining before publicizing it, much like any pyramid scheme. Get in, rake in the suckers, and get out before things go sour. Cha-ching.

    Sisyphean

    February 28, 2014 at 11:32 AM

  3. Another important feature of a currency is aggressive enforcement against efforts to damage it (e.g. by counterfeiting.) Bitcoin was hostile to government enforcement by design and in return, government officials will not be in a hurry to apprehend the hackers. In fact, they may view theft of bitcoins as poetic justice.

    WRB

    February 28, 2014 at 11:47 AM

  4. “The only people who use bitcoin….”

    I thought bitcoin’s anonymity was ideally suited to kidnappers, pimps, drug and human traffickers, money launderers, and various other criminals and lowlife scum in addition, of course, to libertarians.

    Mark Caplan

    February 28, 2014 at 12:09 PM

    • Cash is even more anonymous. How many criminals really need to make large remote transfers? Also, to get the money into bitcoins, you have to buy them, and the only completely secure way to do that is to buy them in person with cash.

      tolles

      February 28, 2014 at 1:03 PM

      • US banks, among others, seem to both launder and transfer large amounts of cash quite efficiently. Penalties if caught seem to be minor.

        Glengarry

        March 2, 2014 at 7:41 PM

  5. Good for illegal bussiness

    IC

    February 28, 2014 at 12:27 PM

  6. Well, no, not really.

    The problem was that there was a software implementation glitch that allowed the malleable part of the transaction record to be modified in various ways when received by nodes in the network and then propagated in those inconsistent ways.

    That meant that when MtGox would try to send people their BTC, the inconsistencies cause the network the be unable to confirm it in a way which would actually deliver the BTCs to the intended recipients. So, essentially, MtGox was throwing BTC in the trash. In order to make good on their promises, they had to dig into their stash of BTC to make second attempts to send people their money.

    If the problem was just an occasional issue (which is what MtGox thought it always would be), then no big deal. But it became a common and major issue all of a sudden (long story), and there wasn’t enough time for them to react when it all hit the fan.

    This wasn’t some fundamental or theoretical fault in Bitcoin itself. That glitch was recognized and remedied by all the other exchanges about two years ago. But MtGox already has their market dominant position, and neglected to address the issue.

    In other words, it was a major, but poorly managed, currency exchange bank. The fiat money system also has major, but poorly managed, banks who make critical mistakes and then go out of business too.

    Oh wait, no, not if they are very large players, in which case they are too big to fail and get bailed out by the government. But not being able to get bailed out does indeed make an alternative and cheap means of transferring value inherently more risky.

    Also, it was pretty stupid of some these people to store their BTC online with MtGox when that is not at all necessary. They should have just used MtGox to do exchanges and kept the BTC on their own hard drives.

    Handle

    February 28, 2014 at 12:55 PM

    • “The problem was that there was a software implementation glitch that allowed the malleable part of the transaction record to be modified in various ways when received by nodes in the network and then propagated in those inconsistent ways.”

      This is what I mean about average people not being smart enough to use bitcoin.

      Lion of the Blogosphere

      February 28, 2014 at 1:21 PM

      • Well, they aren’t smart enough to run an exchange or a ‘mining’ operation, but using the normal interface software is easier than using facebook.

        A normal person can’t understand the system than processes debit card payments either, or hell, even the system that processes paper checks. And yet any idiot can use a debit card or write checks.

        Handle

        February 28, 2014 at 1:29 PM

      • I assume proles would be more willing to use bitcoin than SWPLs, given the fact that there is no prestige in using it. The idea of coins in this day of age is prole to say the least.

        SWPLs prefer to stick with the usual paperless debit/credit bank transactions with the Chase/Citi/BofA banks.

        JS

        February 28, 2014 at 1:36 PM

      • @Handle
        >but using the normal interface software is easier than using facebook.

        Using it is easy, but how is a prole supposed to protect their computer against malware designed to steal their bitcoin?

        Now you might add that there is malware designed to steal credit card information

        Sure crooks can steal credit card information, but cashing out on somebody’s credit card information is the tough part since transactions can be reversed and nobody is anonymous in online banking. In order to cash out anonymously you need a machine that can reproduce the magnetic stripe on a credit/debit card then run around to various ATM’s withdrawing the max amount or going to a store and buying a bunch of stuff on the card.

        Meanwhile for bitcoin, if I hack somebody’s private key I can transfer their entire balance to an account I created. I could even create a computer progam easily that constantly creates new addresses transfers bits and pieces of bitcoin into thousands and thousands of fake accounts eventually consolidating it into one account and using that one account to cash out as an exchange or just order things directly from online merchants straight to my mom’s house without worry because nobody can prove that I did not earn these bitcoins legitimately.

        Worse yet, even if somehow I do get caught by authorities, the authorities can’t get the bitcoin back without literally torturing me for the private key.

        With online money, the feds could just reverse transactions. With hard cash one million worth of $100 bills stacked on top of each other is 333 feet high. Hiding and stealing this much in hard cash is a logistical nightmare.

        kotakoti

        March 4, 2014 at 8:28 AM

    • I wouldn’t be at all surprised if there is an, ah, insider component. (A bit like it usually is in the financial system, come to think of it.)

      Glengarry

      March 2, 2014 at 7:50 PM

      • There is a heavy insider component to bitcoin.

        Wouldn’t you frontrun also if you are an exchange owner and someone just sent in a big buy or sell?

        Wouldn’t you frontrun too if you somehow got bad news before the public, like say you were a insider with the chinese government and knew that they were planning to restrict/ban it.

        When China’s alibaba the equivalent of China’s Amazon and Baidu the equivalent of google allowed spending bitcoin, bitcoin shot up to its all time high of $1200 when these announcements came out bitcoin ended up plummeting to around $600.

        Insiders made out like bandits, they mass dumped bitcoins long before word of the bitcoin ban in China reached the average layperson.

        The same thing has happened in almost every bitcoin crash, mass dumping of coins before the news causing the crash became public.

        The difference is that in the stock market it is not a closed system, profits from real world sales can reach investors making everyone a winner. I can gain money by buying a stuck and collecting dividends.

        Bitcoin on the other hand is a closed system, in order for one person to profit somebody else has to lose money, no dividends are produced, in order to cash out somebody needs to buy in. And you need to make a trade large enough to overcome transaction fees.

        In other words you are basically playing Poker at a casino and for every hand you need to play a blind to the casino. The casino is guaranteed to profit. In order for you to profit you need to make enough from beating the other players to cover all the blinds. Even worse some of the other people at the table have marked some of the cards like aces/kings/queens (aka insider information).

        So far from my observations the average layperson has lost a significant amount of money, while the whales with millions worth of bitcoins and insider information steadily get richer after every crash and panic sell.

        kotakoti

        March 4, 2014 at 8:52 AM

  7. The loss is only half a billion dollars because the bitcoin price just crashed. More like $750 million at recent peak prices, plus another $50 million in US dollars were lost.

    This happens again and again with libertarian cyber-crypto-online-crap, way back to “e-gold” 15 years ago. Multiple online casinos and poker sites also collapsed talking everyone’s money with them, even the “winners.”

    It appears that 7% of all bitcoins in circulation were stolen from just one “bank.” And this was far from the only bitcoin theft, there is a wiki page called “list of bitcoin losses” that runs for page after page of bitcoins getting stolen by hackers, mostly from other “banks,” plus a few people who screwed up, lost their hash passwords, and lost a bunch of bitcoins into thin air.

    We had unregulated banking in the 19th century in the USA, and bank collapses were extremely common, a few random ones each and every month, and then waves when 100s would collapse at once. There is a reason this system doesn’t work and every country uses “fiat money” now, even the libertarian favorites of Singapore and Switzerland.

    US/UK/Australia/Switzerland are all countries that have NEVER had hyperinflation, ever, going back centuries. Why so many right-wing nutjobs are so convinced it is going to happen any day now, when rich people who hate inflation control both parties, is a mystery to me.

    All I can think of is that the talk radio and fox news are always warning about it because half their sponsors are gold-selling scammers who sell coins at a huge markup over the phone and internet.

    tolles

    February 28, 2014 at 1:15 PM

    • “Why so many right-wing nutjobs are so convinced it is going to happen any day now, when rich people who hate inflation control both parties, is a mystery to me.”

      One notion is that, eventually, we have to address the debt and the easiest way to deal with debt is to inflate it away. I mean, hell, it’s better than having to pay it off. I have no opinion one way or another on this, just noting an idea.

      peterike

      February 28, 2014 at 1:49 PM

      • The robot economy will create DEFLATION, so it’s necessary to have loose money policy to counter that.

        Lion of the Blogosphere

        February 28, 2014 at 2:17 PM

      • Isn’t that backward? The unpaid debt has already caused the inflation. That’s why a dollar is only worth 5% of what it used to be. If the debt were paid off, money would have to be taken out of circulation, causing the dollar to go back to its original value.

        CamelCaseRob

        February 28, 2014 at 9:53 PM

      • It doesn’t take a right wing nutjob to expect inflation. Inflation has been the way the government deals with debt consistently for the past 75 years. In the not-distant past there has been double-digit inflation in America. That is enough for money to lose half its value every presidential term. That is a collapse in the value of money, honestly.

        Dan

        March 4, 2014 at 11:37 AM

      • It was temporary. Over the last century, the U.S. dollar has a much better track record than bitcoin has had for the last five years. So there was a bad year when the dollar declined by 12%? Bitcoin can fall by that amount in a single day.

        Since Reagan became president, more than 30 years ago, inflation has remained steadily low.

        Besides, no one keeps their money as cash under a mattress. Back when inflation was high, bank accounts paid good interest.

    • Perhaps not hyperinflation, but the almighty dollar has lost something like 95% of its value since going off the gold standard.

      Glengarry

      March 2, 2014 at 7:54 PM

  8. “Another problem with bitcoin is that you have to be smart to figure out how to use it.”

    Well eventually somebody would develop a simple easy way to use it, for example a debit card which you swipe just like a normal debit card.

    But anyway, I agree with your basic point. If all currencies were managed by corrupt, inept central banks then Bitcoin would be preferable. But Bitcoin is less preferable than a currency managed by a reasonably honest, competent central bank, like the US Dollar.

    As another poster pointed out, there are people out there who think that the Federal Reserve Bank is basically the same thing as Zimbabwe and their savings will get hyperinflated out of existence any day now.
    Admittedly there is a small risk of that happening but it’s a lot smaller than the risk of using Bitcoins.

    sabril

    February 28, 2014 at 4:25 PM

  9. Sorry, Libertarians have been saying stay away from Bitcoin for a long time. The only libertarian thing about it is the media ignoramuses who call anything they don’t follow libertarian.

    rob

    February 28, 2014 at 5:42 PM

  10. “If government money is easier to use and safer, why would anyone use bitcoin? The only people who use bitcoin are: (1) libertarian geeks who have ideological reasons for wanting it to succeed; and (2) people who think they can make a quick buck by speculating in it.”

    EXACTLY. I’ve spent over 5 solid hours reading about how BitCoin works and have read multiple articles in the news on the subject too. I kinda-sorta get the gist of it, but it’s mostly over my head and too confusing. I’m not a genius, but these crypto currencies are WAY too advanced for the average person. These computer geeks who “get it” have no awareness of the greater public and that’s why they’re so blind to the most obvious reason BitCoin or any other variant will not take off. The third group who has an interest in BitCoin are tech-savvy criminals, drug pushers, drug users, etc. and that’s a pretty small number of people.

    A. HARRIS (@classichousetrx)

    February 28, 2014 at 5:58 PM

    • It’s not that difficult to understand a lot of the sources assume you know cryptography + programming already in their explanations.

      The idea is pretty simple but you need the background information.

      The basic thing you need to understand is a hash.

      Think of a hash as something like a anagram.

      Making a anagram is far easier than solving it.

      Lets say my word is dictionary, I simply move around the letters randomly itoaydcinr this takes me as a human 2 seconds to do but if I were to try to manually solve it will definitely take longer than 2 seconds, If I were to take a piece of paper in real life and manually write out every combination it might take me an hour.

      But if somebody were to say the word is dictionary, I would be able to take itoaydcinr check off that it is indeed dictionary in 2 seconds.

      Now scale this concept up to computers, imagine a problem that is easy to create and check for but difficult for it to solve. So difficult in fact that it could take possibly thousands upon thousands of computers working together to find the answer in an hour.

      This concept is called proof of work, by somebody telling me that the answer of the scrambled word is dictionary I can assume that he was the person who scrambled it in the first place.

      ———————————————–

      I’ve managed to explain how bitcoin works to all of my prole friends with no programming experience by explaining it in ways that they would understand.

      I warned them to stay away from bitcoin but they all bought in anyways.

      Most of them had trouble with the “hash” concept which is the backbone of blockchain transaction.

      Wikipedia is a pretty good example of taking a simple to explain concept but then overloading it with jargon so that a normal person wouldn’t be able to comprehend it.
      https://en.wikipedia.org/wiki/Hash_function

      kotakoti

      March 4, 2014 at 9:25 AM

  11. LOTB,

    You are rarely wrong abt these tech/ppl cross-overs but I honestly think you’re too quick to write this tech off. Bitcoin has a lot of development behind it to make it easier and it will be possible in the future for the average person to use it. For now, you’re right. In the past, nobody understood how to use the internet, it was boring & difficult w/ UNIX commands. Then the browser came & the rest is history.

    Also, I think the incentive for money always seems to make people try a little harder to ‘get’ something. Somalis already use bitcoin for remittances, because it saves them a lot of money with remittances. Somalis aren’t exactly known for computer skills (no diss intended, just stating fact).

    Another thing, if bitcoin catches on globally with just the smart fraction. Well, let’s just say that’s a market cap I’d still be interested in.

    Maciano

    February 28, 2014 at 6:36 PM

    • I disagree that most of the smart fraction is going to adopt it.

      From my experience working in a high tech company, most of my coworkers are pretty smart and technically savy guys that are very good at math. I would reckon that everybody is at least 110+.

      All of the senior people = “Whats a bitcoin”
      All of the entry level young guys = It’s a Ponzi/fundamental technical and economic flaws make it unusable for mass adoption

      The only people I know that have actually bought in are people who didn’t know anything about investing, aren’t the brightest bulbs in the box (Highschool dropouts/college dropouts/tier 3 party college graduates with liberal arts degrees) that were pressured by a friend or family member assuring them that this was the next big thing. These guys also typically go to casino’s and tend to gamble quite a bit.

      I predict that bitcoin will always be around but it will never reach mass adoption similar to linux and will mostly be used by people who can’t do legitimate banking and speculators.

      kotakoti

      March 4, 2014 at 9:41 AM

      • Once a major government officially classifies it a Ponzi scheme and makes it illegal to sell it, that will be the end of bitcoin.


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