What people who argue argue bitcoin don't seem to get is that you don't need the participation of banks at all.
If an individual offers any good or service in exchange for bitcoins they can get bitcoins so long as the people with bitcoins wants that good or service. There was a perfect example here on HN the other day. Someone would purchase electronics products from Newegg for HNers in other countries in exchange for bitcoin. The cost in bitcoins was equal to the cost of the product in USD converted to bitcoins plus an operating margin.
The flatter the World gets the more likely that bitcoin is likely to have utility.
All the naysayers keep harping on about how bitcoin will never gain mainstream acceptance in the US. They're partially right. The mainstream US is not the target market. Bitcoin will probably enjoy some mainstream acceptance in the US, but it will probably be a long time from now and occur well after it enjoys mainstream success in some foreign market.
The key global feature that makes bitcoin viable is a functioning and reliable postal service. Beyond that all that is necessary is a robust reputation management system.
With those two features, you can transact easily and simply with anyone in the World without ever dealing with US banks. That's the key piece to get here. In the long-term, regulation of US banks prohibiting bitcoin will hurt banks more than bitcoin, because it just means that they won't be able to participate.
The key to a functioning bitcoin economy is not the middlemen such as banks. The key are enough endpoints so that there are enough goods and services you want to buy in bitcoin that uses charge in bitcoin and then maintain the currency until they spend it on a good or service they want.
Everyone focuses on the banks and intermediaries, but it's the quantity and diversity endpoints (buyers/sellers) that truly matter.
While bitcoin is designed to be a currency, it is not yet a currency. It is rather a commodity. If it is to be a currency it must be able to be used to buy any commodity - in particular, dollars. If someone has to think about what they can't "buy" it may be useful to them but it's not as a currency. A currency has this property of universal exchange (and security, stability, ...) Bitcoin is questionable on many counts, thus is likely to remain a tradeable commodity only.
You hit the nail right on the head. I can buy some stuff on Newegg, and have someone in another country mail me gold. Or ship me oil. Or coal. That doesn't mean oil or coal is a currency, they're just a commodity. And I'm just engaged in trading.
Bitcoin is more like a currency than oil or coal, because it mechanically works a lot like one. But just because you say 'this is a currency', doesn't mean it actually is one. You are missing all of the higher level stuff. There is a reason a dollar backed by the US government is far more useful than a random coin 'backed' by a government of an island nobody recognizes.
My uncle is a mechanic, and has traded his time fixing commercial vangs for goods. We've had plenty of parties cartered in exchange for fixing the restaurent's delivery fan, or borrowed plenty of heavy equipment from contractors that need their truck fixed but don't have cash. Does that mean a tray of chicken marsala and a plate of bakery cookies are a currency? Of coruse not. Trade/bartering existed long before currency existed, and it still goes on today. Commodities existed long before currency existed. Being able to trade one commodity (bitcoin) for a good or service doesn't make it a currency.
We've learned this lesson over the last 200 years but a lot of people seem to ignore them. Most of the people pushing bitcoins harp on the fact that dollar keeps getting devalued, but they are ignoring the history showing that is a far better problem than a deflationary currency .
Bitcoin has greater fungibility than oil, coal or gold and can be exchanged electronically with anyone in the World.
Is bitcoin competitive with the Dollar, the Euro or the Yen? No, it isn't competitive with those currencies or many other currencies. If, however, you abandon a developed country centric viewpoint, there are plenty of secondary and tertiary markets where bitcoin is competitive with the domestic currency.
If you've ever lived abroad you know that you simply don't have access to the same goods and services that people in the US and Europe enjoy. It's a huge pain to purchase US goods and services from abroad. The transaction costs are very high.
Increasingly individuals want to be able to trade as if the world is flat and it's very difficult and banks siphon off lots of money with unnecessarily high fees. This makes some goods entirely unpurchasable because the fees become a significant part of the cost.
That right there is a great example of a buy-side willing to spend bitcoins.
For bitcoin to gain traction in the US you need a buy-side here. This is where the US War on Drugs makes bitcoin attractive. Drugs will always be in demand. Always. Anyone who tells you otherwise is full of it. You now have a medium of exchange which makes trade much much safer for individuals involved in clandestine activities.
Personally, I'm neither for or against these activities. I'm just making an observation. I actually and for a Portugal-style approach that treats drugs as a social problem and not a criminal problem. So long as drugs remain a criminal problem you will have a buy-side here in the US.
Now, if those at the top of the drug pyramid start seeing significant benefits from trading in bitcoin, they will start adopting it. Bitcoin is safer because it eliminates the money laundering risk from their business, which is pretty much the only activity that is truly centrally observable by a government. On top of that, money laundering is a significant cost of doing business and AFAIK is probably comparable to the fees Apple charges developers for in-app subscriptions.
If bitcoin demand moves down the drug distribution pyramid it only becomes a matter of time before dealers are going to start wanting to collect at least a portion of their costs in bitcoin.
As I said, I'm neither for or against these activities, but this is a sufficiently large and stable market to eventually help stabilize the value of bitcoins and make it tradable in other contexts in other countries.
If Square can be successful in helping individuals transact with other individuals, then so can bitcoin ... eventually.
The moment you abandon a Dollar or Euro centric viewpoint it become far more obvious how bitcoin can gain legitimacy in other contexts. As far as the US is concerned the bitcoin will probably remain a currency for illegal activities until it becomes so commonplace for those activities that it starts crossing over to the mainstream among drug purchasers. Keep in mind that 47.1% of the US have used illegal drugs.
"All the naysayers keep harping on about how bitcoin will never gain mainstream acceptance in the US. They're partially right. The mainstream US is not the target market. Bitcoin will probably enjoy some mainstream acceptance in the US, but it will probably be a long time from now and occur well after it enjoys mainstream success in some foreign market."
Without mainstream success, why would I want to accept bitcoin for my services if I can't convert it to the US dollar or any other type of currency (and if you do this, you will need the help of a bank)?
We also can't forget the huge fluctuations in value that happens on almost a daily basis (I just sold an ipod for $100 in bitcoin and now it's worth $15) and no protection from the government or bank means no oversight or regulation.
With these sorts of risks, I just can't see myself putting any of my money in bitcoin. I know I'm not alone.
It's interesting because naturally, it seems like bitcoin will become centralized through wallet services or exchanges. They will essentially become banks, by a different name.
You don't need banks or wallets. You just need reputation management.
Users can trade amongst themselves if every user in a market has visibility into the reputation of their counterparties.
Even using untraceable pseudonyms, there is economic value in having a high trading reputation. Oftentimes companies on eBay and in other markets are able to command a price premium over their competitors based largely on their reputation. B&H PhotoVideo is a perfect example of this. They don't have the lowest prices, but they have easily the best reputation on the web, especially among professionals and consumers that purchase the types of products they sell. They are extremely successful and many people I know purchase from them based largely on their reputation.
The general equation that would govern whether counterparty A would defraud counterparty B would basically be:
if the value of price premium of Counterparty A's reputation multiplied by trading volume is greater than the transaction amount then they have an economic incentive to remain honest.
Of course this equation isn't that simple. For example, the reputation damage from one fraudulent transaction committed by Counterparty A would not ripple through the system immediately. This means that if Counterparty A wanted to extract the maximum value from his reputation at the cost of torpedoing his reputation, he would be able to commit as many fraudulent transactions as his daily transaction volume multiplied by the number of days it takes for fraud to be reported in the reputation system.
So long as the "speed of fraud reporting" is small, Counterparty A can enjoy very little economic value from torpedoing his reputation, expect in the case that the transaction amounts are very very high.
One way to increase the amount that could be transacted solely on reputation would be to apply relationship data to reputation. i.e. my reputation helps/hurts the reputation of those that I vouch for and vice versa. Such a system would greatly reduce the incentive to defraud others, because you'd have to hurt those that placed their trust in you. This system is of course vulnerable to Bernie Madoff types that take advantage of the trust of their in-group, but then again everyone who put their money in with Bernie Madoff are idiots who are in deniable about their financial stupidity.
I want to believe this, but I don' think there is a congruent market for legal goods that are willing to take BitCoins online. If buy an eighth from my dealer, he can go buy milk and bread. If I buy an eighth from someone on SilkRoad, they can... buy electronics on NewEgg (which would stop if USD exchange stopped)... and that's about it.
You are assuming that your dealer will always be in the US and local. AFAIK small amounts of many drugs for personal use are not hard to send through the postal service.
From what I read on the Gawker article, Silk Road permits Americans to buy from a dealer they've never met before from anywhere in the world based solely on reputation. No one in their right mind would pay a dealer via a bank transfer because of the paper trail it leaves, but they probably wouldn't be too concerned with transferring bitcoins. For many, you may have a greater risk of being defrauded, but you've eliminated risk associated with dealing with drug dealers in person. For some people this is an acceptable tradeoff in risk, especially since people have been robbed at gun-point by dealers.
Interestingly, services like Silk road have the potential to eliminate much of the violence associated with the drug trade because physical proximity of the counter-parties is eliminated. You can't get beat up and shot by someone you never have to meet.
In my opinion the number one threat to the mainstream adoption of bitcoin in the US would be the legalization of Marijuana. Marijuana is so widely used that it is the one commodity that prevents the social graph of potential bitcoin users in the US from being full of wholes.
The only part of that sentence that I found terribly relevant was the first. I'm just not sure that there will be enough dealers that are not just located outside of the United States, but located outside of ANY foreign country that would likely hop on an anti-BTC bandwagon. Additionally you have to worry about customs, etc.
Honestly, I'm just not sure that many users are using SilkRoad for ganja. Like you said, it's so widely used. Granted, I'll eat my words in a few months, but it's easy enough to get your hands on that I certainly would have to be in a very uncomfortable spot to risk having weed mailed to me. I'm not really into anything else, though HN keeps me intrigued about LSD, and even then I'm sure I could ask 2-3 people and get that, so I'm not really sure.
I think people greatly overestimate the capabilities of any government, US or otherwise, to police parcels coming in and out of the country. The overwhelming majority of drug war dollars are spent on going after big busts. There practically is no budget for postal packages unless there is something suspicious about them. This policy of course would change if the drug market experiences a shift from locally sourced to postal sourced.
The only drugs that make sense to source locally are those that can be grown locally, namely marijuana and mushrooms. Almost all others are fair game for postal sourcing.
This article is short but nails the biggest bitcoin hurdle I can see at the moment.
The intrinsic value of currency is given by the services and tangible products it can buy.
With a USD (or EUR or GBP or whatever) you can buy virtually everything (except, maybe, love and happiness :)), while it it wasn't for the possibility to exchange bitcoins for "actual" money, the amount of things you could buy with them would be virtually nothing, as of today.
Want to buy an Ipod from an Apple store ? You can't.
Renew your WoW account ? You can't.
Buy at Amazon ? You can't.
The only way to do that is to either go through middlemen that offers the same, or similar, products/services secondhand or exchange bitcoins for cash. And both services will disappear in a blink, if they will find they can't exchange their bitcoins for cash.
The only way I can see bitcoins to take off indefinitely is that its economy of services/products you can buy with them will grow to a point that its intrinsic value will be enough for the people to stick with them, regardlessly of the possibilit to exchange them.
But we are talking years, I doubt they will be given such breathing space.
For all the short blogs, there are very few, if any short options written or listed at bitoption.org. I made a little bit of money on mild shorts there this week, essentially betting against major price increases, but I just don't see any like $2 puts being listed for end of the year.
Yes, I agree, and "Anonymous" reminds me a lot of the daemon network. The only thing we don't have is Hari Seldon, er I mean Matthew Sobol. Daniel Suarez is awesome.
Funny that you bring up Hari Seldon - you have to kind of suspend a lot of disbelief to be convinced that someone could basically single-handedly foresee everything that could potentially happen.
I think you're talking about Seldon for this one, and you're definitely right - the Mule was unforseen, and unforseeable, and he did have spiritual successors.
I don't think Sobol really did - definitely not in the Daemon novel, anyway, every operative was following the AI's instructions. The darknet became (or at least, was shown to be) more self-sufficient later on, when there was less focus on murdering people and more on building communities.
I just didn't think it was particularly realistic to skip from A to B without everything falling apart in between - especially considering that there wasn't anything like psychohistory in Suarez's book to wave your hands around.
If an individual offers any good or service in exchange for bitcoins they can get bitcoins so long as the people with bitcoins wants that good or service. There was a perfect example here on HN the other day. Someone would purchase electronics products from Newegg for HNers in other countries in exchange for bitcoin. The cost in bitcoins was equal to the cost of the product in USD converted to bitcoins plus an operating margin.
The flatter the World gets the more likely that bitcoin is likely to have utility.
All the naysayers keep harping on about how bitcoin will never gain mainstream acceptance in the US. They're partially right. The mainstream US is not the target market. Bitcoin will probably enjoy some mainstream acceptance in the US, but it will probably be a long time from now and occur well after it enjoys mainstream success in some foreign market.
The key global feature that makes bitcoin viable is a functioning and reliable postal service. Beyond that all that is necessary is a robust reputation management system.
With those two features, you can transact easily and simply with anyone in the World without ever dealing with US banks. That's the key piece to get here. In the long-term, regulation of US banks prohibiting bitcoin will hurt banks more than bitcoin, because it just means that they won't be able to participate.
The key to a functioning bitcoin economy is not the middlemen such as banks. The key are enough endpoints so that there are enough goods and services you want to buy in bitcoin that uses charge in bitcoin and then maintain the currency until they spend it on a good or service they want.
Everyone focuses on the banks and intermediaries, but it's the quantity and diversity endpoints (buyers/sellers) that truly matter.