Bitcoin Crash in Real Time
This is kind of neat, though I have to disagree when the guy at one point says, “This is the biggest story of all time.” (And he’s not saying it tongue-in-cheek.)
I got the link from Justin Ptak’s blog post over at Mises. I gather from the comments that Justin has been critical of Bitcoin. I am still very open-minded (and still collecting info for the article some of us are working on). But one comment from Justin’s thread actually struck a chord with me:
Please, this is supposed to be perfect according to all those arguments with me. This can never happen. People don’t get compromised. It’s secure and impossible to violate. Now here we have one lone user completely destroying a supposedly “sound” monetary system in a matter of seconds. Now we have an arbitrary group called administrator’s taking on pseudo-governmental power and rolling back transactions THEY believe are suspect. No trial, nothing, just the suspicion of faulty transactions.
Another reason I have little faith this “money” will survive for very long.
I have seen this particular critic (“J. Murray”) say things in the past about Bitcoin that struck me as non sequiturs. This one, however, seemed pretty serious. If the whole point of Bitcoin is that there is no central administrator, then yeah–how was it that the Mt. Gox people can reverse trades? Is it that users hand over their private keys when they place their coins under the custodianship of Mt. Gox, and the people to whom they coins were transferred didn’t actually receive the coins in an “outside” capacity, but merely got their account with Mt. Gox credited?
Is it that users hand over their private keys when they place their coins under the custodianship of Mt. Gox, and the people to whom they coins were transferred didn’t actually receive the coins in an “outside” capacity, but merely got their account with Mt. Gox credited?
Basically, yes. The exchange did not have people transfer their bitcoins directly to each other, but acted as custodian of both the bitcoins and USD traded on the site. As viewed by the Bitcoin protocol, Mt. Gox (through all of its Bitcoin addresses) was the “real” owner of the bitcoins, and you would withdraw them (or dollars) like you would at a brokerage. Since it could treat either as credits, no bitcoins were actually being transferred per the protocol. (Since they’re all internal credits, you can just undo them, which wouldn’t be possible if people were really signing over bitcoins to each other.)
One correction to your wording though: you didn’t give the private keys for your addresses to Mt. Gox; rather, you signed the transfer of the bitcoins over to Mt. Gox like any other Bitcoin transaction.
The comment by J._Murray (and most of the critical comments on this matter) are extremely misinformed.
Mt. Gox is not the same thing as a Bitcoin! It is one exchange where you can convert bitcoins to USD, and became the most popular one very quickly. You can still use Bitcoin per the usual protocol. You can still trade Bitcoins for dollars and vice versa on other sites. What happened over the weekend was like if Ebay got hacked, circa 1998, and then people using that as vindication that “I was right all along that that this whole buying-stuff-online is doomed and will never take off”.
The crash was not “real” in the sense of a massive loss of confidence in Bitcoin leading to a sell-off. Rather, it was a hacker controlling compromised accounts, who was trying to cash out as quickly as possible. All through the “crash”, bitcoins were trading on other sites for around what they had been, so the value across the whole market hadn’t changed much; it’s just that with the biggest exchange site gone, the market was a lot thinner and the bid/ask spreads were wider.
Yeah, I realized after I posted that my wording with the “private keys” stuff was wrong. What I meant was, they used their private keys to actually transfer the BitCoins over to Mt. Gox.
What you are saying is actually what I assumed had happened, even though my post itself would be inconclusive…
How come Sila groks it, but Austrians don’t????
And responding more generally to J._Murray’s point: A chain — or cryptosystem — is as strong as its weakest link. If the cryptosystem (like Bitcoin) is good, the weakest link is the people who use it. In practical encryption applications, attackers won’t try to “brute force” the encrypted ciphertext by trying every possible private key; rather, they’ll look for related weaknesses with how the keys are stored, in particular, the humans that carry out the protocol.
This xkcd comic makes the point humorously.
In a very narrow sense, then, it’s “good” that the weakest link is not the Bitcoin protocol — that means it’s doing its job. But no system can be completely immune to what its users do. Physical cash is useful, even though someone can get it from you by mugging or burglary. And likewise, by being careless with critical information (in the case of Mt. Gox, it was apparently an auditor that viewed the database insecurely),
So yes, if there were people saying this couldn’t happen because users are perfect, they’re wrong. But people who defended the protocol were right, as it wasn’t the bitcoin system that was destroyed; it was a site that deals in it.
How would the trojan targeting the BitCoin plain-text wallet.dat file fit in with that? Is that a weakness in the system or a weakness in the user?
Both, but more of a system problem. The bitcoin protocol itself does not require you to keep a plaintext wallet file. However, current Bitcoin clients require extra effort on the part of the user to encrypt it, which is avoidable. The development team should make it a top priority to allow seamless integration of the encryption with the client.
At the very least, they should make it so that when you only want to see your account total (which only requires knowing the public keys), the file with your private keys can be encrypted. As it stands, you can’t do anything to the file with your private keys (wallet.dat) or have it encrypted while the client is open; and if you use a “dummy” wallet file, you can’t see your public keys or your “real” balance.
Definite problem with the code, but not the protocol itself, which, again, nowhere requires the private key storage to work like it currently does.
Silas, the developers are already working in the encryption part and will be present in the next release of the client.
In fact, its already coded in the git repository and it is being tested and perfected.
Awesome! Thanks for the info!
Haven’t been paying attention to bitcoin but a few observations from the video;
1)I’m impressed this guy is running the exchange data feed through a standard trading platform.
2)The fact that there isn’t a centralized exchange seems to have been a positive. If people were scanning different exchanges they would see it was an exhange problem. At some point enough arbitrage would force hackers to take them all down simultaneously.
3)Trying to “fix” the “bad” trades is going to be a disaster since the price action caused people to make trades – whether the guilty acct(s) was(were) on the other side or not – they wouldn’t otherwise have made. During the May flash crash the exchanges arbitrarily busted a bunch of trades in the equities, screwing over plently of people. (Think if you bought into the crash under the price trades were busted at and then sold a few minutes later above that level; now you’re effectively short for the massive ride up)
4)At least there was no leverage. During the May flash crash plenty of traders went into negative equity.
5)I’m sure goldman is in the process of setting up their Bitcoin Desk as we speak. Only a matter of time before we see bitcoin swaptions. (was only half joking)
Bob, you complain about bad reporting and you are doint the same. Bitcoin did not crash. A hacker took control of one exchange webpage, no user was allowed to access, and the hacker played with the price up and down. At the same time, the price of bitcoins in the rest of the exchanges, while volatile due to the confusion, did not collapse (I believe it did not go under $10).
Also Bitcoin trading was restarted some hours ago at TradeHill, maybe the second exchange after MtGox, and after touching a low of $6, its now sitting more or less stable at $15.
Also, I want to point out that, despite the information given at other places, the Bitcoin protocol was not hacked or compromised in any way. What happen is that a page that used bitcoins and dollars was hacked, just like Citygroup, that uses mainly dollars, was hacked two weeks ago.
Hugo, what are you talking about? I’m not complaining about bad reporting. I’m linking to a crash in the price of Bitcoin (at least on one exchange), and I’m asking what the heck happened. So what is your problem with this post?
Also, wasn’t Bitcoin trading above $17 on the other exchanges, before going down to (you say) something over $10 but perhaps close to that? Well that’s a “crash” in any meaningful sense of the term.
The stock market crashed in 1987, even though it came back afterward. There really was a “flash crash” more recently, even though it came back quickly.
I’m not knocking Bitcoin, I’m trying to figure out what happened. The knee-jerk defensiveness of it (“hey this wasn’t a crash! The price only fell 40% in a few minutes at some of the exchanges, no big whoop”) makes me take the claims for it less seriously, for what it’s worth. It sounds like people really really want it to work, so they are downplaying even reasonable objections.
Bob, it wasnt a crash. The price touched somewhere over $10 at some point but then it went up again. You have the trading data here: http://bitcoincharts.com/markets/thUSD.html Does that really look like a crash?
Bitcoin is still a young and small market, specially those small exchanges and they can be very volatile. So the variation was nothing specially spectacular given the situation.
I did the math wrong. (I’m an Austrian.) I thought it dropped 40% which would indeed have been a crash. Dropping almost 15% is not necessarily a crash, I’ll grant you, though the speed with which it happened is pretty intense.
However, is it true that Mt. Gox has over 95% of the market? If so, then it was a crash, since BC went to almost 0 on Mt. Gox.
Anyway, believe it or not, this actually reaffirms my belief that BC is viable, since if anything were going to knock it out, it would be stuff like this. So if this kind of thing doesn’t scare people away, I don’t see what would (besides Schumer putting electrodes on you).
Yes, MtGox had the big majority of the trades. I can not give you a percentage because I dont know it, but it was a big majority. Hopefully this incident will change that. The participants on the market have to learn. TradeHill, another exchange, is already picking up the slack (to paraphrase your friend Krugman). 😉
And about the “crash” in MtGox, if you want to call that a crash… The price did go to cents, but it was not real market action, it was a hacker manipulating it. I dont see how is that relevant to the price discovery. I mean the hack will affect bitcoin expectation is some way or another, but the fact that the hacker took bitocins to cents of dollars is quite meaningless. It could have taken bitcoins to $100 if he wanted to. I dont think it says anything about the real price of bitcoins. So for me its a strech or directly wrong to call it a crash.
>Please, this is supposed to be perfect according to all those arguments with me. This can never happen. People don’t get compromised. It’s secure and impossible to violate. Now here we have one lone user completely destroying a supposedly “sound” monetary system in a matter of seconds. Now we have an arbitrary group called administrator’s taking on pseudo-governmental power and rolling back transactions THEY believe are suspect. No trial, nothing, just the suspicion of faulty transactions.
This is just plain ridiculous. Bitcoin was not hacked or compromised in any way. That is why its now trading in double digits again. Let me repeat it: Bitcoin was not hacked or compromised in any way, and not one transaction with bitcoins was reversed or anything similar.
What has happened is that one page using bitcoins and dollars was hacked and the hacker played around with the price in that page while everyone else was blocked from accessing. The webpage, a private business, has decided to undo the transactions done by the hacker INSIDE their page. Any transaction in the Bitcoin network will not be undone because its basically not possible. I though this audience would understand the concept of a private business reuglating itself… How is this taking pseudo-governmental actions?
Bob, please, this is not your usual level. Spreading FUD is not typical of you.
Huge wrote:
The webpage, a private business, has decided to undo the transactions done by the hacker INSIDE their page. Any transaction in the Bitcoin network will not be undone because its basically not possible. I though this audience would understand the concept of a private business reuglating itself… How is this taking pseudo-governmental actions?
Bob, please, this is not your usual level. Spreading FUD is not typical of you.
Hugo, if you think this is making me more sympathetic to Bitcoin, you are wrong. I was asking for clarification of what happened. Go read my post again. I suspected that what J. Murray was saying didn’t make sense–given how Bitcoin works–and so I asked people to explain how could Mt. Gox reverse trades. Silas gave me a perfectly reasonable answer–he didn’t assume I was “out to get Bitcoin” because I asked how it worked in this case.
And you are above saying that Mt. Gox reversed only the trades done by the hacker. Are you 100% sure about that? There might not have been people using Mt. Gox, who saw the price plummeting and tried to sell some of their coins to get out before everybody else?
Hah! Someone should check the status of swine aviation! I never thought I’d see the day when Bob would use a comment I made as an example of being politely helpful! 😉
Anyway, I do think you have a valid point, that defenders of bitcoin (including myself) have been too dismissive of the significance of this event.
(In fairness, most of what is being spread around about this — “I thought you couldn’t reverse trades?” “This is supposed to be impossible, right?” “Hah, bitcoin is dead now, and worthless”, “The bitcoin protocol is obvious flawed”, etc etc etc — is flat out wrong or confused, and has to be corrected before any non-defensive remarks can be made. Such corrections have comprised the majority of my comments on the matter.)
While Mt. Gox was indeed “just one exchange”, it quickly became the exchange, and handled over 99.9% of transactions, even despite no “official” relationship to the Bitcoin project. And regardless of the merit of the criticism, such a spectacular event does give Bitcoin a bad image, which can keep it from getting the traction it needs to become widely accepted.
So this was indeed a rude awakening for proponents of Bitcoin, just not quite as bad as critics have portrayed. And I’m not sure what the Bitcoin project *as such* could have done to prepare for problems related to what business ventures *do* with Bitcoins so long as it doesn’t undermine the protocol. This expectation is like blaming the US Mint for muggings — the Mint is only there to get counterfeit-proof physical dollars out, not to prevent any crime that could involve dollars, certainly not to prevent Scottrade or the NYSE from being hacked.
And regarding the overall market price during the Mt. Gox crash, it may very well have reduced bids in part of the market to $10, but that wasn’t any different from the volatility it had in the weeks before. I know it’s not much of a defense to say, “but it *normally* has that much insane volatility”, but then, people are a bit unreasonable to expect bitcoin to have the low volatility of a national currency while still nascent.
Also, you’re right Bob, Mt. Gox isn’t just reversing the trades by the hacker. They are (perhaps in recognition of his influence on other trades) rolling back to the state at an earlier state in time.
Bob, didnt want my post to be that way. It can get a bit tiring and fustrating sometimes with all the FUD that goes around. But you are right that I am not making any good service to the Bitcoin project.
Regarding the trades at MtGox, obviously I can not be sure MtGox is actually doing what they claim to be doing. But I guess people would notice and protest if MtGox undid real trades.
And people wanted to buy bitcoins, not sell them, at least in the forum. People were “screaming” because they wanted to buy bitcoins at $1 and less, and the connection was not working. You can go and check yourself in the threads about the MtGox hack.
There is even a guy who had a very old order to buy bitcoins at 0.1 dollar, lots of them, and the order went trhough. The guy though he was now a bitmilllionare, but the order is being undone so he gets his dollars only. He is complaining in the forums because he wants the bitcoins and thinks it is not fair that the trades are being cancelled.
Thanks for setting the record straight Silas.
You are exactly right that Bitcoin didn’t experience any problems. The problems were with one of the exchanges.
Kind of a distinction without a difference.
It’s a pretty big difference, Beefcake_the_Mighty. Like, the difference between “The NYSE has temporarily shut down” and “All claims to corporate ownership via common stock are voided.”
Yawn. Someone needs to learn the meaning of the expression, “putting the cart before the horse.”
How so?
There’s a reason why established institutions can weather these storms. You rely too much on analogies.
How does that justify your original argument, that there is no difference between “the major exchange for bitcoin went down” vs. “the bitcoin protocol was compromised”?
One more thing I would like to add.
While the Bitcoin people have been running around on the defensive, I want to launch an offensive against gold.
I want a gold standard advocate to explain to me how a digital representation of gold can be secured against counterfeiting.
As we all know, history is replete with banks inflating their reserves and governments dumping or debasing metals.
I want to know how it is possible to totally prevent inflation and counterfeiting of digital gold receipts.
Unless the gold people want to argue that all transactions should take place in physical gold, they have to demonstrate how they intend to secure digital gold receipts from arbitrary counterfeiting and inflation by banks and governments.
It can’t be done.
Only by using Bitcoins can it be done.
Hey Bob, didn’t you write a study guide to Man, Economy, and State? Do you recall any discussion in that book about a certain theorem developed by Mises? Does the regression theorem ring any bells? Let me give you a hint: it’s NOT about economic downturns.
I think at this point, every Mises-literate person in the world is waiting with bated breath for Bob’s verdict on the relationship between the regression theorem and bitcoin 😛
There are about a thousand different debates on the matter across the internets right now…
I am pretty sure that some of us have already brought up the regression theorem on Bob’s blog.
Yes, those were included in my count.
Thanks; do you recall the blog post where this was discussed?
No, but it was within the past month or so if I remember correctly.
I want to know about bitcoin and inflation. For example, CPU’s will undoubtedly get faster and cheaper, so presumably bitcoin mining will also get easier. Who gets to decide that the price of 50 bitcoins per hash needs to go down? Whoever is making that decision is in effect the Federal Reserve of the bitcoin system.
Tel, it’s baked into the protocol. The possible number of bitcoins to ever come into existence approaches 21 million. The computational problem gets harder and harder by a controlled factor in order to assure this.
It represents, by far, the most predictable money supply that has ever existed on this earth.
I can’t promise this will explain things to your satisfaction, but it’s a start: http://en.wikipedia.org/wiki/Bitcoin
To give a more immediate answer and expand on Rick_Hull’s comment:
The protocol is set up so that it “tries” to produce exactly one block every ten minutes (one block currently entitling the finder to 50 BTC, then a few years later 25, then a few years later 12.5 ….). As miners are devoting ever more computing power to the mining, the protocol is set to periodically adjust so that if blocks are being found too fast, it increases the difficulty factor, and vice versa.
The “enforcement” of this increase in difficulty factor comes from how everyone on the network knows when and how often new blocks have been found/produced, and all nodes following the protocol are set to only accept new blocks (and recognize the bitcoins therefrom) that are found per the latest difficulty factor [1] (which is derived from a formula in the protocol) not easier ones.
Deviating from this standard (or changing the predefined rate of bitcoin growth) would require breaking the protocol, which would get your claims rejected by all the other nodes, and so could only be accomplished by getting almost the entire network to switch protocols with you.
[1] The difficulty factor is basically a measure of how “exact” your solution has to be. Since the solution space is effectively random, increasing the exactness requirement causes a predictable increase in the number of solutions you have to test before you find a valid one.
No, no, it’s okay, Tel, you don’t have to thank me. The thought that I might have provided a suprerior explanation is thanks enough.
This attitude among some Austrians intrigues me, Beefcake. Already Bitcoin is being used as a genuine medium of exchange. That is, some people are directly trading goods directly for Bitcoin.
So if your position is that the regression theorem and Bitcoin are incompatible, then you are saying Mises and Rothbard were wrong. Not “they would be wrong if it ever turned into a money,” but they are already wrong. According to the regression theorem, you have to trace the purchasing power of money back to the days of direct exchange.
“Some” people are trading via Bitcoin? And what goods are they trading, exactly? You seem to have a pretty liberal standard for what constitutes a “genuine” medium of exchange.
Speaking of funny attitudes, I see a very definite defensiveness on the part of Bitcoin supporters (which I didn’t think you were committed one way or another, but you exhibit some of the telltale signs here). I’m actually agnostic myself, but the zealousness of its supporters gives me pause.
“Some” = https://en.bitcoin.it/wiki/Trade
OK, fair enough, I stand corrected on that. Bob could have strengthened his argument by providing this link in the first place.
Your ignorance is my fault, Beefcake. I see.
Gosh Bob, the logical corollary of this is that you should pay taxes towards a universal education system.
BTW Bob, you’re aware that the point of the regression theorem is to explain how money comes to be integrated into an actor’s value scales, via marginal utility? The fact that people may use Bitcoin for certain transactions is no more relevant than the fact that people can use in exchange shares of IBM stock or some stick they find laying on the ground.
Didn’t you just lament that Bob has “a pretty liberal standard for what constitutes a “genuine” medium of exchange.” Now you’re arguing that sticks could used as currency for economic transactions?
The point is not that anything “could” be used as currency, it’s that Bitcoins *are* being used. In greater and greater numbers daily. I have a hard time believing that you’d find many people with goods and services you want to trade for that would accept sticks in exchange.
I’m not saying these things are *general* media of exchange. It seems to me that things like Bitcoin, whatever their potential may be, are simply piggy-backing off established currencies (and their associated exchange rates). Bitcoin is not true money. That doesn’t mean it doesn’t have great utility (again, I’m rather agnostic on the whole thing), but this whole vibe that government monetary systems are going to be threatened by it are a little much to take.
Yeah Beefcake, I know what the point of the regression theorem was. I wrote the study guides to MES, Human Action, and now I’m working on one for the TOMC.
What is your definition of a “medium of exchange”? I’m using Mises’.
Hey Bob, just so I am certain as to what is going on here, are using Mises’ definition of medium of exchange as well as his definition of money? I guess what I am getting at here is I see bitcoin as a medium of exchange, but not a generally excepted medium of exchange (money). Is that the way that you are looking at it as well?
Excellent point.
Keep in mind, that while I do see BC as a medium of exchange, I see it as a extremely limited medium of exchange (there’s A LOT that you cannot buy with it). Also, many people that to engage in trade with BC still do so based upon the dollar value of BCs, not the actual value of the BC itself. However, the regression theorem in my mind is an explanation of mediums of exchange that become money, not those that do not.
More excellent points by Joseph Fetz, in particular on the regression theorem.
Bitcoin may indeed be a very useful means of payment within an *existing* monetary nexus. However, the question Bitcoin supporters need to answer is this: if the existing fiat monies of the world suddenly vanished, what would happen to Bitcoin?
Beefcake, how is Joseph Fetz’s post making an “excellent point” when he repeated back what I said? You are wondering whether I have read my Mises, and yet you congratulate Fetz for taking the same position I am taking here.
Bitcoin is already a medium of exchange. Namely, people are accepting it not because they plan on consuming it or using it in production, but only to trade it away again. If they were only doing so against dollars, I’d give you an out and let you call it an “investment” rather than a medium of exchange, but people are directly selling real goods against Bitcoin, without going through dollars. So it is a bona fide medium of exchange.
Now it’s not yet money, because it’s not generally accepted.
But, the arguments people are using against Bitcoin–to “prove” that it could never become money because to do so would violate the regression theorem–would also “prove” that it could never be what it currently is, a medium of exchange used by a small community.
At a minimum Bob, he got to the essence of the issue with far greater clarity than you did.
So simply answer this question, Bob: where would Bitcoin be without the existing nexus of a price system (however marred by the State)? The regression theorem’s not gonna help you with this.
SIDE NOTE: Now I understand the reply limitations of this particular comment platform.
> where would Bitcoin be without the existing nexus of a price system (however marred by the State)?
Oh, come off it. You know darn well that if BTC *were not* reliably convertible to USD that such property would be *untenable* is a purported currency.
For any given MoE (or money) introduction, there is a context of existing pricing mechanisms.
Bob, just so that you know, I was just trying to get clarification that that was indeed your position. I am glad that we are reading the regression theorem the same way.
However, I think that we may have a difference in opinion with regard to BTCs value in exchange. BTCs current value seems to be primarily determined by its dollar price, and although many vendors are accepting BTC they are doing so based upon the dollar exchange.
Also, while this is more conjecture than anything, I would say that after the vendor exchanges his goods/services for BTC, that more than likely he is then exchanging those BTCs for dollars in order to pay for the costs of running his business (capital, inventory, labor, rent, etc).
Basically, my opinion is that BTC has not yet become an independent medium of exchange other than in an extremely small set of exchanges.
A medium of exchange is what is used by humans as such. Pretty simple.
You apparently did not get at all what I was saying. An economy can have many mediums of exchange, but not have a money. Since we were talking about the regression theorem this distinction is pretty important. According to Austrian theory, a medium of exchange does not become money until it is generally accepted as a medium of exchange.
Also, they are very limited in that they don’t have any other use other than for exchange (i.e. no use value), and that they cannot yet be used to pay for all of the requirements for operating a business. Sure, a business can sell his goods/services for bitcoins, but he then must convert them into dollars to pay his rent, capital maintenance, utilities, inventory costs, taxes, etc.
It is a horrible medium for a store of value, because its value has fluctuated greatly on a day-to-day, week-to-week basis; its value has been primarily a function of its use in currency exchange. It has garnered more popularity as a speculative medium more than it has as a genuine medium of exchange for goods/services.
BTW, in the second and third paragraph above I am referring to bitcoins
Now that you bring it up: nothing can be a store of value. Values can’t be stored. Money as a store of value is at best a metaphor, and a bad one at that.
As for the lack of wide acceptance of the currency: doesn’t matter. As long as two people accept it, it IS money already.
However, you are free to not use it as such. If you don’t feel confidence in it, that’s it. Don’t use it. Simple as that.
By the way, do you think gold is money? Because by your criteria, it is not. At least not now.
What does ‘generally accepted as money’ even mean? Two people? A thousand? A billion?
It’s a nonsensical limitation. A medium of exchange becomes money as soon as at least two human beings accept it as such.
OK but if you talk that way then “medium of exchange” and “money” are interchangeable terms. That’s fine, but it’s not what most people mean by “money.”
First, I never said gold is money, however it does have characteristics that would make it a great money. History has proved this out many times that in a free market gold has been very popular as a market-based money.
As for the store of value, I am quite aware that value is subjective and thus cannot be stored. The prime consideration that I was making is that it must be marketable over time, that its value does not wildly fluctuate. Further, that it has some value independent from its use a medium of exchange. Bitcoin’s exchange value does wildly fluctuate, and if it ceased to have any exchange value, its value would be nothing (just like any fiat currency). This concept originated with Aristotle, and hasn’t really changed all that much since, but it is very important when dealing with money considerations.
Further, the general acceptability of a medium of exchange is extremely important. If one is limited by the exchanges that can be made with a particular medium of exchange, and/or their ability to calculate with a medium of exchange, then it certainly cannot be called money. In fact, the businesses and individuals (American) who use bitcoin still do all their exchanges based upon dollar prices, and calculate their profits/losses, expenses, exchange values, etc in dollar terms.
This bitcoin thing has been running on my computer for weeks. Account balance = 0. Probably not normal, right?
This is the future thing I’m going to exchange for food?
@Wondering: You mean you’ve set the client to generate coins (i.e., “mining”)? That’s part of the initial generation and distribution phase of the coins, and does not affect anyone’s ability to earn (or spend) bitcoins via other means, as they would with any other currency.
As of late, the difficulty of generating coins has become so great, that you will probably never get coins by setting the client to mine, so your result is to be expected. The only way to get bitcoins from mining now is to set up dedicated hardware (like this) that’s good at computing lots of SHA-256 hashes quickly (which your standard computer CPU is not), and then join a mining pool, which, when it “finds a block” will give you a share of the new bitcoins in proportion to how many hash calculations you contributed. (This requires that you install one of the free bitcoin mining clients like Phoenix or poclbm.)
See here (toward the end) for a brief overview of how mining via hashing works. Or visit the Bitcoin wiki.
Silas, if it’s not a secret, it would be interesting if you had an update saying how much you had earned thus far. (You can quote the earnings not at the time of the crash. :))
Well, I’ll keep that a secret to avoid unwanted attention. I will say that if I sold my system and all my coins at current prices, I’d come out with a profit.
Also, I’ve held on to all bitcoins I’ve generated rather than sell them … which I guess I should mention more frequently, as kind of a “conflict of interest”.
The Ponzi scheme needs plenty of people like you who get no Bitcoin for mining but buys them from the early entrants. They then exchange their dollars for food.
So might ask yourself if the scheme will last long enough so you can enter now and buy tomorrow some food with the dollars you make from other suckers.
MamMoTh I thought you were value-free when it came to descriptions of fiat money systems. It sounds here like you are making personal value judgments about the morality of the whole system.
If Silas became charismatic enough to demand tribute from everyone, and only accepted Bitcoin in payment, then you’d drop your sarcasm and berate people for objecting to the whole thing, right?
Bob, Silas didn’t know it was a fiat currency! Now he will get sick and sell of all his bitcoins and crash the market. Again!
I never took an opinion on that matter (which is a case of “wrong question, dissolve don’t answer”, anyway). All I did was criticize one point, which was how your position forced you to suppose some “sovereign issuer” for a decentralized currency.
I stand by that.
There is an issuer and its a monopolist one. So let’s call it a monopolist issuer instead of a sovereign issuer. Decentralization is irrelevant.
And I would only approve of it if Silas would deficit spend into the economy forever. Which he couldn’t by definition of the Bitcoin. Hence its Ponziness.
You could certainly borrow bitcoins from a bitcoin FRB. It’s just that — and this is the part I love about it — you can actually *insulate* yourself from the idiots that do this by holding onto your real bitcoins, and no one will raid you to bail out the bums when their ventures fail. Nice.
And un-Ponzi-like.
You better have something that somebody else is willing to give you bitcoins for. Just like any other money. Either you have money, or you have goods or service to offer. Without either, you are SOL. Welcome to reality, cupcake :).
I wrote an article arguing against the gold standard because of its ability to be arbitrarily inflated and counterfeited.
http://www.libertariannews.org/2011/06/21/against-the-gold-standard/
I would love to hear some opinions on this.
I think Mises regression theorm is wrong in as much as it assumes that a commodity has to be a physical thing.
I’d say you got your knowledge of the regression theorem from one of Bob’s study guides.
General announcement: Sorry everyone, I am getting worked up on this thread for some reason. I think it’s because I still haven’t packed for Porc Fest and my flight is really early in the morning.
Your meanness on your worst day is still nicer than my politeness on my politest day 🙂
http://www.youtube.com/watch?v=pAQ32LLjNn8
Yeah, I could hardly believe the ogre in these threads was Robert Murphy.
Sarcasm is a dangerous servant, and a fearful master. (Or something like that.) Meaning, I wanted to nip it in the bud.
Shameless plug: http://dietwald.com/2011/06/19/bitcoin-and-another-radical-idea-on-money/
Mt Gox doesn’t use the bitcoin blockchain except when transffering bitcoins in or out. This wasn’t what everyone keeps claiming it was. What it was was a massive attempted heist from a single massive holder of bitcoins. Because Mt. Gox was in possession of all the coins being traded and all the coins in Mt. Gox accounts it was able to happen.