bitcoin

Duke of Marmalade

Frequent Poster
Messages
2,847
Sounds like the greatest load of baloney to me.:eek: That clip which is presumably promoting Bitcoin states bluntly that it is not for you or me who have bank accounts and credit cards but it's for those folk in Africa and places that have smartphones but no bank accounts.

This idea that it is limited to 21M and therefore its scarcity makes it valuable just doesn't gel. I am sure that certain strains of the Siberian pox are extremely rare, doesn't make them valuable.:rolleyes: And the idea that the money supply should be capped is oh so old hat - the Gold standard was abandoned a long time ago. A capped money supply means permanent deflation if we can manage to deliver the technology based productivity driven growth that has been the norm (more or less) for some time now.
 

fpalb

Frequent Poster
Messages
190
Sounds like the greatest load of baloney to me.:eek: That clip which is presumably promoting Bitcoin states bluntly that it is not for you or me who have bank accounts and credit cards but it's for those folk in Africa and places that have smartphones but no bank accounts.
Well, that's just his opinion, Bitcoin can be used by you if you like as it's a free (as in speech) and open system. I think his point is that Bitcoin will currently appeal more to those who have the most to gain from using it which is people with no access to, or grievances with, the existing financial services and banking, for whatever reason.

This idea that it is limited to 21M and therefore its scarcity makes it valuable just doesn't gel. I am sure that certain strains of the Siberian pox are extremely rare, doesn't make them valuable.:rolleyes: And the idea that the money supply should be capped is oh so old hat - the Gold standard was abandoned a long time ago. A capped money supply means permanent deflation if we can manage to deliver the technology based productivity driven growth that has been the norm (more or less) for some time now.
Anything scarce and useful will be valuable to some degree. The scarcity doesn't in itself make it valuable, but it is necessary and is notable because Bitcoin was the first scarce digital internet-transferable asset without dependence on any company to enforce the scarcity. As for whether our current economic models which rely on permanent growth and have proven to result in boom-bust cycles are worse than what a Bitcoin economy might look like is a matter of opinion. Personally, I'm not opposed to trying something new, especially if it's by a matter of choice not force.

Bitcoin is a technological breakthrough - for 20+ years people have been trying to invent a digital cash system and the invention of crypto-currency finally makes it possible. A global, free to access, incorruptible ledger, with cheap instant transactions and bitcoin the currency as the first 'app'. Maybe Bitcoin will continue to be the leader, maybe an even better crypto-currency emerges, but in my opinion there's no going back now, the 'internet of money and finance' is coming one way or another and it's going to disrupt related industries just like the internet itself disrupted the communication and media industries.
 

Purple

Frequent Poster
Messages
10,203
Well, that's just his opinion, Bitcoin can be used by you if you like as it's a free (as in speech) and open system. I think his point is that Bitcoin will currently appeal more to those who have the most to gain from using it which is people with no access to, or grievances with, the existing financial services and banking, for whatever reason.
here are plenty of ways to hold and move money electronically without having a bank account or even a bank. Kenya is the world leader in this with M-PESA handling around 25% of the country's GNP. I don't know much about Bitcoin but if that's the hook then it doesn't bode well for its future!
 

fpalb

Frequent Poster
Messages
190
here are plenty of ways to hold and move money electronically without having a bank account or even a bank. Kenya is the world leader in this with M-PESA handling around 25% of the country's GNP. I don't know much about Bitcoin but if that's the hook then it doesn't bode well for its future!
I think M-PESA is indeed a good example of the trend away from traditional banking and how developing nations will leapfrog some of the infrastructure the first world uses. However, the M-PESA system is still a closed system, so in effect the telecom operators are the banks. You can't use it in Ireland right? Bitcoin is permission-less and therefore immediately global. Interestingly, someone already built a Bitcoin to M-PESA service: https://www.bitpesa.co/
 

Purple

Frequent Poster
Messages
10,203
I think M-PESA is indeed a good example of the trend away from traditional banking and how developing nations will leapfrog some of the infrastructure the first world uses. However, the M-PESA system is still a closed system, so in effect the telecom operators are the banks. You can't use it in Ireland right? Bitcoin is permission-less and therefore immediately global. Interestingly, someone already built a Bitcoin to M-PESA service: https://www.bitpesa.co/
It's a small leap to link M-PESA to Irish banks. If Vodafone or O2 link into it then the leap will be smaller, or even unnecessary. There's no reason why the same system couldn't operate here. I see this as a bigger threat to traditional banking than Bitcoin.
 

fpalb

Frequent Poster
Messages
190
It's a small leap to link M-PESA to Irish banks. If Vodafone or O2 link into it then the leap will be smaller, or even unnecessary. There's no reason why the same system couldn't operate here. I see this as a bigger threat to traditional banking than Bitcoin.
If it's a such a small leap, why haven't they done it? The M-PESA wikipedia page says "It is unlikely, as of May 2014, however, that the service will expand into Western Europe anytime soon." Maybe I'm wrong, but I suspect it's because of the legal hassles and cost of operating in a 1st world country, which will always be the case for any company-backed system.
 

Purple

Frequent Poster
Messages
10,203
If it's a such a small leap, why haven't they done it? The M-PESA wikipedia page says "It is unlikely, as of May 2014, however, that the service will expand into Western Europe anytime soon." Maybe I'm wrong, but I suspect it's because of the legal hassles and cost of operating in a 1st world country, which will always be the case for any company-backed system.
The same applied to Currency Fair and other exchange companies like them. When the market momentum is there it will happen, even if it's a new platform doing the same thing.
 

Duke of Marmalade

Frequent Poster
Messages
2,847
Please somebody tell me what exactly is Bitcoin, not what it is used for.

If I had a Bitcoin what would it look like? What about it would make me value it? The video clip states that gold has no intrinsic value. How very wrong that is. Sure you can't eat gold and it ain't very useful for industrial purposes. But it is beautiful, heavy and permanent and it makes lovely jewellery. Gold has been valued by humanity for ever - many have died and been killed for it. It is not valuable by convention - it is valuable intrinsically. I really can't see me ever drooling over my hoard of Bitcoin.
 

fpalb

Frequent Poster
Messages
190
Please somebody tell me what exactly is Bitcoin, not what it is used for.
To understand this it's first important to understand that money is just memory - a way of knowing who did some work and is storing the value of it to spend later, or who owes value to someone else. This is why we can now operate without most money existing in physical form at all. You log into your online banking and send some money to another account, what happens? It's not as if they put some cash in a truck and drive it to the other persons bank. A digital ledger gets updated, your balance is reduced by 100, the other persons balance is increased by 100. The transactions in a digital ledger are the money.

So, Bitcoin is also just a digital ledger that exists on the Internet. It's public and balances are deduced and verified by the history of all transactions that have been made. Everyone running the full Bitcoin software has a copy of every transaction that's ever been done. Anyone is free to run software to participate and anyone is free to create a new account giving them the ability to receive and then send Bitcoins. Bitcoins themselves as such don't actually exist, we say that if someone 'has bitcoins' what we really mean is that there is a positive balance on an account in the Bitcoin ledger and that person has the key required to spend them. Each 'account' consists of a public key and a private key. Think of it like an email address and a password . Anyone with your public email address can send you email but only you have the private password so only you can send from your address.

A public key (or account address) looks like this 1QGmXgfdW6DErRZbJDEVRecQedhj84npLf . Because the ledger is public we can even see that that particular address has a balance of 0.03 BTC : https://blockchain.info/address/1QGmXgfdW6DErRZbJDEVRecQedhj84npLf however only the person with the corresponding private key for that address can spend that 0.03 bitcoins and they can do so without being stopped by anyone, and I really mean only that person, there's no company or authority that spend, freeze or seize those Bitcoins.

Bitcoin takes some time to get your head around, because in many ways it's like turning what we're used to with banks inside out.
 

Purple

Frequent Poster
Messages
10,203
To understand this it's first important to understand that money is just memory - a way of knowing who did some work and is storing the value of it to spend later, or who owes value to someone else
In what way does Bitcoin represent the "memory" of work done or value added? What is its value derived from?
 

fpalb

Frequent Poster
Messages
190
In what way does Bitcoin represent the "memory" of work done or value added? What is its value derived from?
Why is one piece of coloured paper worth 50euro and another worth 10euro? Because of a common agreement that we can use certain pieces of paper as money. Originally there was no paper money, things occurring in nature that had the properties required for money (scarce, hard to counterfeit, easy to recognise, portable, durable, fungible, divisible, unit of account) were used as money, gold and silver emerging as the most common as they fit these properties more than any other naturally occurring thing. At some point though it was realised that fiat money could improve upon some aspects such as portability and divisibility and it originally had value as it was an IOU for gold or silver. Paper notes were a man-made technology for money. Eventually people realised that the gold backing the paper didn't matter and nowadays no money is backed by gold, because there was never any need for the actual gold itself as money anyway. We don't need to use physical objects with 'intrinsic value' as money, we just need a technology that works as money, that has the properties of money - lets us store value, lets us make payments. Bitcoin is the first pure digital technology that can be used as money in this manner.

And now we get back to the second part of the post prior to yours:
The video clip states that gold has no intrinsic value. How very wrong that is. Sure you can't eat gold and it ain't very useful for industrial purposes. But it is beautiful, heavy and permanent and it makes lovely jewellery. Gold has been valued by humanity for ever - many have died and been killed for it. It is not valuable by convention - it is valuable intrinsically. I really can't see me ever drooling over my hoard of Bitcoin.
Thought experiment: if gold was plentiful and renewable, for example if it grew on trees, it would still be shiny and permanent and make jewelry, but it would not be scarce, would central banks still hold gold? could it still be used as money?

Though experiment 2: If the gold bars that the central bank keep are never used to make jewelry, i.e. the use of their intrinsic value is never applied, then why does it matter?

There is an interesting paper about Money and Memory: https://www.minneapolisfed.org/research/sr/sr218.pdf for anyone interested.
 

Duke of Marmalade

Frequent Poster
Messages
2,847
fbalb thanks for that, and for the fascinating links. So that is a close as I will get to seeing or touching a Bitcoin (well .03BTC):rolleyes:

I absolutely accept that today's currency is purely virtual - mainly entries on bank ledgers with intrinsically valueless paper notes in circulation.

But this money is backed by real economic claims. If I have a deposit in the bank "society" owes me that "money". Others in turn owe the bank that money. My deposit is a genuine claim on society to deliver me goods and services when I chose to call in my dues. Of course, this relies on the continued integrity of the system but this is more than a mere confidence trick or a reliance on the debtors in society being trustworthy. There is a whole culture and legislative framework to make it very much in the debtors interest to honour their debts. The main treat to the "value" of my deposit is the Government printing the stuff but these days this threat seems also to have been abated (let's not talk QE, that's somewhere else;)).

In short, my deposit is not merely an electronic entry in a ledger, it is a legal claim on goods and services from the economy. Gold on the other hand does not give me a claim on society. I rely on its intrinsic value to make that exchange.

Now BTC has neither one nor the other. I can see that it has absolutely no intrinsic value. Whilst I was fascinated to see that little bit of .03 BTC I am not tempted to look at it again and as for its scarcity, I couldn't care less. But neither is it a claim on any economic substance. There are no debtors behind it. If I have a deposit I can with very real meaning say that I am owed something real. With BTC, I am owed nothing I have merely a record of some transaction. That might work in Africa, it ain't for simple folk like me.
 

fpalb

Frequent Poster
Messages
190
But this money is backed by real economic claims. If I have a deposit in the bank "society" owes me that "money". Others in turn owe the bank that money. My deposit is a genuine claim on society to deliver me goods and services when I chose to call in my dues. Of course, this relies on the continued integrity of the system but this is more than a mere confidence trick or a reliance on the debtors in society being trustworthy. There is a whole culture and legislative framework to make it very much in the debtors interest to honour their debts. The main treat to the "value" of my deposit is the Government printing the stuff but these days this threat seems also to have been abated (let's not talk QE, that's somewhere else;)).
I disagree with this "My deposit is a genuine claim on society to deliver me goods and services when I chose to call in my dues"

Sure I can tell you how much goods and services 100euro will buy you today, I can tell with less certainty how much it would buy you in 6 months (especially given the QE that is starting), and even less certainty in 10 years time. In fact I can't even be sure the euro will exist in 10 years. Gold has historically been a better store of wealth than fiat monies. A ounce of gold could buy a good mans suit in roman times, and still does today. The average lifespan of fiat currencies is apparently 27 years (http://georgewashington2.blogspot.ie/2011/08/average-life-expectancy-for-fiat.html) and we know that in every case fiat currencies tend to devalue gradually (or in the end not so gradually) due to inflation over time, because the scarcity of fiat is enforced by central banks and sooner or later they give in to debasing it by printing more of it.

But anyway, I don't want to come across as too much of a doom-and-gloomer, my point is that in the long run nothing is guaranteed about the value of anything, be it fiat or gold or bitcoin.

Now BTC has neither one nor the other. I can see that it has absolutely no intrinsic value. Whilst I was fascinated to see that little bit of .03 BTC I am not tempted to look at it again and as for its scarcity, I couldn't care less. But neither is it a claim on any economic entity. There are no debtors behind it. If I have a deposit I can with very real meaning say that I am owed something real. With BTC, I am owed nothing I have merely a record of some transaction. That might work in Africa, it ain't for simple folk like me.
The apparent value bitcoin provides will vary from person to person. Some may value it because they want to make online purchases without sharing sensitive personal information (such as credit card details), some may value it because they are denied access to banks/paypal etc. There are a lot of possible applications both at the B2B and consumer level . The bottom line is the bitcoin payment system provides a cheap, fast, secure, global payment system. Many find this useful. To use this payment system you must have bitcoins, and bitcoins are limited in supply, therefore scarce. Anything both useful and scarce will have value in this world. If the utility of the bitcoin payment system for whatever reason goes to zero, bitcoins will be worthless.
 

Purple

Frequent Poster
Messages
10,203
The bottom line is the bitcoin payment system provides a cheap, fast, secure, global payment system. Many find this useful. To use this payment system you must have bitcoins, and bitcoins are limited in supply, therefore scarce. Anything both useful and scarce will have value in this world. If the utility of the bitcoin payment system for whatever reason goes to zero, bitcoins will be worthless.
That's the point; it only has value as long as people accept it has value. Without it another payment system will be used, its disappearance would have little or no impact on society or trade. This may well be because it hasn't been around for very long but it is not a new phenomenon; it is a variation on what's there already.

The same cannot be said for money as we know it now. In that it has intrinsic value in practical terms.

I don't see what it's USP is. If it gets traction and becomes engrained then it will acquire real value but at the moment I don't see its worth other than its speculative value.
 

Duke of Marmalade

Frequent Poster
Messages
2,847
fpalb I agree that the integrity of money as a claim on society is dependent on central banks managing its supply in line with the economy's capacity to honour those claims. Nonetheless, it is a most marvellous and sophisticated concept and has played no small part in the massive growth in Western economies over the last century or so. I can't see how 21m BTC can ever match up to the flexibility of fiat currency in being able to adapt to an economy's needs.

Money as a claim on the economy has very real value albeit dependent on management of the price level. The attributes you have cited for BTC have the most flimsy of value. Would I value super slick and safe transmission? A bit but not nearly enough to justify the face value of the BTC. I'm afraid that despite your evangelical efforts I will remain a disbeliever.:p
 

fpalb

Frequent Poster
Messages
190
That's the point; it only has value as long as people accept it has value. Without it another payment system will be used, its disappearance would have little or no impact on society or trade. This may well be because it hasn't been around for very long but it is not a new phenomenon; it is a variation on what's there already.
As a payment system, yes, it can be seen as a variation on what's there, like many at first viewed the internet as a variation on a fax machine, but bitcoin is also revolutionary in many ways, as I'll discuss more below.

I don't see what it's USP is. If it gets traction and becomes engrained then it will acquire real value but at the moment I don't see its worth other than its speculative value.
How much traction is enough traction? Bitcoin is still small on a global scale, but has it reached critical mass yet? I'm not sure, probably not, but here are some numbers: There are about 13,848,000 of the eventual 21m in existence, trading at $240 giving a market cap of over $3 billion. Transaction numbers are steadily increasing, there are about 100,000 Bitcoin transactions per day lately. Last year Microsoft started accepting Bitcoin becoming the largest company to do so. $350m in venture capital funding to Bitcoin related companies last year, and another $100 already this year, when there had only been about $100m in total prior to 2014, so what are these companies going to do....

I guess I haven't really explored a lot of the possible benefits of Bitcoin in previous posts so lets do that. I'll try to explain why Bitcoin is more like the Internet of money than money for the Internet.

Credit cards
Credit cards are fundamentally flawed as an online payment mechanism and they were never designed for it. They involve giving your private payment info to the merchant and hoping they don't take too much or store and leak your details. This is like walking into a shop and handing the cashier your wallet and hoping they only take the right amount and don't scan your drivers licence. With Bitcoin the transaction to the merchant is signed with your private key *locally* and then communicated - your private key never leaves your device. There is no private information given to the merchant, there can be no subsequent payments taken from you.

The cost of credit card fraud is usually hidden from consumers, but baked into the prices of everything we buy as the merchant is on the hook for significant fees from the CC companies to cover this fraud, not to mention possibly on the hook for the full amount for purchases deemed to have been made with fraudulent cards. If everything you bought was 2% cheaper (or maybe more for some merchants) with Bitcoin because merchants didn't have to worry about CC fees or charge-backs would it encourage you? Bitcoin can be better than CCs in this case, but I accept that there may be other solutions too, either way, I think CCs are on the way out, and we'll be making most payments with our phones or some dedicated hardware wallet device within 10 years.

For example, I found https://bitbook.ie/ as an example, you can go to that site and make a bet with Bitcoin without creating an account or providing any details whatsoever. It's the online equivalent of walking into a bookies in person. This is impossible with credit cards or even something like paypal.

Programmable Money
Bitcoin is the first natively programmable money, so this is an entirely new concept for us. You can make transactions that are timelocked so something like a trust fund could be natively implemented in the money itself, no 3rd party or fees needed. Bitcoin addresses can also have multiple private keys. You can make an account that needs m of n keys, e.g. 3 of 5 keys or 6 of 10 keys. Again this is native to protocol itself, and has many uses for things such as joint accounts, corporate accounts and provides a way of securing Bitcoin like nothing else on earth can be secured. Imagine making a 3 of 5 key account. One key on your phone, one key at your parents house, one key in a safe deposit box at a bank locally, one in a safe deposit box in Switzerland etc. Any 3 of the keys are needed to spend the coins. You can't secure cash or gold like this.

You can make trust-less escrow transactions where the escrow party can only either return the funds to the original account or complete the payment but cannot steal the money themselves. Additionally, since Bitcoin is programmable and not tied to personal identity it can be used by automated software applications, this has long been a missing part of the puzzle for autonomous agent-based software systems.

Smart Property
Bitcoins can be used to represent more than tokens in the Bitcoin payment system. Imagine you own a company and have a Bitcoin which you divide into 10,000 sub-units and sell. Each of these units could represent a share in the company. Dividends could be paid directly to the owners of the units without even having to know who they are. The units could also be transacted peer-to-peer by the share-holders without any stock market being needed. Imagine if these units represented property rights e.g. car or home ownership. A global public ledger can be used for more than just money. Imagine how this could replace human-based property-conveyance, stock-markets, escrow services.

People are working on all the things I've mentioned above, but it's still really early days. Even though Bitcoin is about 6 years old now, it's really only in the last year these more advanced use-cases have started emerging. In 1995 we had no idea youtube or twitter or facebook would be built on the Internet, we still don't know what the final successful applications built on Bitcoin might be.

fpalb I agree that the integrity of money as a claim on society is dependent on central banks managing its supply in line with the economy's capacity to honour those claims. Nonetheless, it is a most marvellous and sophisticated concept and has played no small part in the massive growth in Western economies over the last century or so. I can't see how 21m BTC can ever match up to the flexibility of fiat currency in being able to adapt to an economy's needs.
Just as a note on the 21m cap. Bitcoins are already sub-divisible to 8 decimal places. The smallest unit called a Satoshi is 100,000,000th of a Bitcoin. Even more decimal places could be added if needed by a change to the software. Digital money does not suffer the same limitations of physical money in terms of divisibility. There's not going to be a problem of there not being enough for everyone.

As for how our western economies are doing, I'm no expert, but I don't take it for granted that the system we currently have is as good as it gets. The rich are getting richer in proportion to everyone else, and when the QE money tap is turned on those closest to the faucet seem to benefit the most. How come QE isn't divided fairly among the citizens bank accounts? :) As someone that was fiscally responsible and has never taken a loan I resent having to pay for bank bailouts and having my savings devalued by QE because the banks are 'too big' to fail. I'm not convinced that 'voting in the other guys', 'better regulation' or any incremental changes to the system are likely to be a good enough solution. I would much prefer that we invent ways to make the banks obsolete, working around them with technology that is not as prone to human corruption. As I said before, I'm ready to try something else, I look forward to the day I can close all my bank accounts.

If nothing else I hope Bitcoin will at least force the existing system to up their game due to competition. It's 2015 and it can still take *days* to send money between digital bank accounts. Fees for financial operations that should be completely automated are ridiculous, it should cost pennies to make a stock trade not 30euro.

Money as a claim on the economy has very real value albeit dependent on management of the price level. The attributes you have cited for BTC have the most flimsy of value. Would I value super slick and safe transmission? A bit but not nearly enough to justify the face value of the BTC. I'm afraid that despite your evangelical efforts I will remain a disbeliever.:p
It's still early days, I'm a big Bitcoin enthusiast but even I wouldn't risk pouring my life savings in. There is both great opportunity and great risk. At the moment I am mostly enjoying the educational journey :)
 
Last edited:

MrEarl

Frequent Poster
Messages
1,957
Hi,

Anyone in Bitcoins these days ?

As investors, speculators, or simply for various day to day transactions over the internet ?

Whats the experience please ?
 

fpalb

Frequent Poster
Messages
190
Hi,

Anyone in Bitcoins these days ?

As investors, speculators, or simply for various day to day transactions over the internet ?

Whats the experience please ?
I still am mostly as a speculative store value - the same reason people buy gold. Also used it for the odd purchase online. Bitcoin was at $240 when I posted earlier in this thread in February last year it's now at $770.
 
Top