A Prediction: Bitcoin Is Doomed to Fail - <AUTHOR> http://dealbook.nytimes.com/2013/11/27/a-prediction-bitcoin-is-doomed-to-fail/ <comment><USER2> Bitcoin befuddles experts who analyze it from a narrow perspective, because it is not just a new medium of exchange or a new store of value: it is also a new kind of point-of-sale payment system (one that doesn't require payment processors), a new kind of global financial transfer system (one that doesn't require financial institutions), a new kind of time-stamping certification system (one that doesn't require notaries or county clerks), a new kind of contract-enforcing mechanism (one that doesn't require lawyers), etc.

With rising global adoption, many new kinds of applications are likely to be created to take advantage of the Bitcoin network, the design of which even specifies a built-in script for defining and executing new types of transactions involving any arbitrary number of parties.[1]

In short, Bitcoin is a _technology platform_ \-- one that is benefiting from network effects.

It may fail as "money" (in a narrow sense) and still succeed as a global platform.

In fact, Bitcoin is already a success.

\--

[1] [https://en.bitcoin.it/wiki/Script](https://en.bitcoin.it/wiki/Script)

<comment><USER3> > It may fail as "money" (in a narrow sense) and still succeed as a global > platform.

I think that was the author's point.

For example, Paypal, Amazon or the IRS could announce tomorrow they will accept payment in Bitcoins but peg their BTC/USD exchange rate to one.

Speculation would all but stop and Bitcoins would become a transaction platform.

<comment><USER4> No, because no one would give them bitcoins at 1:1 and they can't magic up their own, they 'd have to buy them at market price and then sell them at a hilarious loss.

<comment><USER3> eBay, Amazon, and IRS don't need Bitcoins, they can set any exchange rate they want.

If enough goods and service providers followed suit, current speculators would have to take a hilarious loss to buy anything.

<comment><USER4> they can sure set them, and then no one would use them. do you not understand money?

what are you, the owner of 100btc going to do:

a) buy $100usd worth of goods at ebay directly

b) cash out at a proper exchange for $100,000usd, then buy $100usb worth of goods on ebay and have $99,900usd left over? or cash out ONE btc for $1000usd, buy $100usd of goods and have $900 usd left over AND 99btc?

How do you expect any even remotely rational players do participate in this farce?

<comment><USER3> In any financial exchange, both parties, the buyer and seller, need to come to agreement on a price.

Given the fact that current BTC to USD exchange volume is fairly small, it wouldn't take that many large global goods and service providers pegging their BTC/USD exchange rate to cause the speculation market to collapse.

Those that recently bought their Bitcoins at $900 would sell below the current high price to realize their gain and avoid a potential loss, then those who bought at $800 would follow suit, and so on.

In very short order, Bitcoins could be trading in single digits.

<comment><USER5> The buyers and sellers have come to an agreement already. They prefer the price of $1000. Any large retailer attempting to manufacture an artificial peg would only create a good amount of temporary humor.

<comment><USER6> Retailers aren't going to set prices for their goods that might fluctuate from $1 to $10 to $50 back to $1 within a week or so. It'd make it impossible to run a business.

What they ultimately want is to guarantee they're going to receive the equivalent of $X for every widget they sell, so they'll either have to declare that Y BTC = X USD regardless of market prices, or they'll have to accept whatever Y in BTC is equivalent to X USD on a given exchange on a given day -- which is essentially equivalent to doing business in USD directly, with BTC as just a weird payment mechanism.

Businesses are going to be hesitant to accept BTC for the same reason they don't tend to accept payment in kind -- you need dollars to pay taxes and wages.

<comment><USER5> Payment processors such as bitpay offer same-day bitcoin-to-fiat conversion and bank deposit with extremely low fees (0.1% - 1%), and are becoming the defacto standard. This is expected during the bootstrapping phase. Later, if bitcoin firmly establishes itself, merchants could choose to not convert directly to fiat.

<comment><USER6> Merchants would still need to convert to legal tender for payroll, rent, and taxes. Their income and expenses would still be more efficiently denominated in dollars (or the local equivalent). What is the expected draw for businesses to keep their operating funds in BTC as opposed to USD?

<comment><USER5> Did you read my post? Bitpay converts bitcoin to the fiat currency of your choice. It is hassle free and much cheaper than credit cards.

</comment></comment></comment></comment></comment></comment></comment></comment></comment></comment></comment><comment><USER7> I think Bitcoin's doomed to fail, but not for the reasons the article suggest.

There're ample historical counterexamples of currencies that are _not_ tied to a government. Gold is the most obvious example; if currency was inextricably tied to governments, there would not have been a mad rush to colonize the New World (and extract its gold reserves). In prisons cigarettes frequently serve as currency, as a medium of exchange that is widely valued.

What really makes a currency is _confidence_. People have to believe that other people will continue to value the currency later. Government backing can provide one source of confidence. But so can strong crypto, and one could argue that these days people have more confidence in crypto than in governments.

What'll really kill Bitcoin is that this speculative wave has made the price incredibly volatile, so volatile that real merchants selling real goods have no idea what to price things at. So everyone holding Bitcoins purchases them for investment value, and then the price will crash when it stops going up. That destroys confidence in the currency, which destroys the currency.

I could easily see a successor currency based on the Bitcoin protocol emerging from the ashes, though. By then the speculators will have been burned so badly that they'll stay far away, so it'll quietly gain adoption in the background, and then eventually become the new currency of choice when inflation starts to make it's way through current fiat currencies.

<comment><USER8> If you use a service like BitPay, which most BitCoin merchants too, you declare your price in dollars and the API uses the current exchange rate to convert it to BitCoin, minute-by-minute. The prices float up and down with the currency, so pricing is largely a non-problem.

It makes rational sense for merchants to accept BitCoin and to keep some holdings in BitCoin because the price is increasing at such a rapid pace. Why wouldn't you want to sell something for x BTC today when that amount could be worth twice as much tomorrow? For the same reason it doesn't make a whole lot of sense to spend a BitCoin. Eventually the currency will level out when the incentive to spend equalizes with the incentive to receive. This might not happen for a while as long as speculation remains the predominant driving force.

<comment><USER9> If you're valuing everything in dollars, setting your price in dollars, and converting to and from dollars, why not just use dollars. I think this is the leap BitCoin is yet to make. When we no longer have to convert it and compare it to dollars.

It has loads of benefits over using the dollar, but a lot of those benefits are lost the second you're having it exchanged.

For instance, if I wanted to use bitcoin for contracting, my clients would have to convert their dollars into bitcoins, then I'd accept the bitcoins smoothly and easily, and then I'd have to exchange them (sell them) back for dollars to buy groceries and pay for the bus. Whereas right now, I get an Interac e-transfer and in less than 30 seconds I have money I can go to the store with, and it cost the sender only a dollar in fees. Sure, it's taxable, but the second I convert it from bit coins it's trackable anyway.

I definitely think this is a model we're going to see a lot more of in the future, but Bitcoin with it's thousand dollar and rising valuation and constant fluctuations is very difficult to get behind and actively use. And with the number of people, just of the people I know, who bought in hoping to cash out, there might be quite the tumble on the way. Who knows though, it will be interesting to watch, that's for sure.

<comment><USER10> I read a great comment at a local forum earlier along the lines of: No one wants bitcoin, everyone wants ... to exchange their bitcoins for as many dollars as possible.

<comment><USER11> Exactly. For the moment it's mostly cementing USD's position further.

</comment></comment></comment></comment></comment><comment><USER12> He is essentially giving the chartalist theory of money. Money cannot arise except through the fiat of the state. Chartalists hate the Mengerian theory on the origin of money because it posits that money arises as a market phenomena. Eventually the state co-opted money, but that does not mean money _arose_ because of the state. The emergence of bitcoin is a thorn in the side to chartalists. We can't really go back and figure out the exact history of how gold emerged as money, but bitcoin is being monetized right before our eyes. The angst felt by chartalists is also felt by inflationists. They hate the idea that you could have a successful currency that cannot be inflated beyond a fixed supply. So they are naturally defensive. Every success bitcoin has undermines their world view.

<comment><USER13> That's not my reading; I believe what he is getting at (similarly brought up in Graeber's book) is that when the government controls a large enough share of the economy, the sine qua non of "money" is that you can pay taxes with it. That doesn't require anything about the historical origins of money.

<comment><USER14> I should probably read Graeber's book, though based on what I see here I might find it a bit exhausting. I hear this argument a lot in discussions about bitcoins, and I ask, but have not yet received, a good explanation.

Let me ask you if you can summarize the reasoning for why paying taxes in a currency helps a currency? It seems very obvious that the opposite is true -- if you don't have to pay taxes by working in an alternate currency, then you would obviously want to use that. Which is why tax law always requires arcane provisions to allow the taxation of barter and foreign currency transactions so that the loophole can be closed.

It seems that if the ability to pay taxes in a currency were sufficient to support a currency, then laws dictating how to handle non-local-currency transactions would be unnecessary.

<comment><USER13> "Debt" really is good, especially if you disregard what he writes about >1950 where he messed up a few factual assertions.

It's not so much that "paying taxes in a currency helps a currency" \- it's that _forcing_ people to pay taxes in a particular currency or go to jail creates demand for that currency, which percolates through the economy (especially if they're concurrently giving it out when they're obliged to pay someone).

Consider what would happen if the US declared "you can pay your taxes in BTC, and only in BTC". There being ~21M bitcoins, and ~$2.5trillion of federal taxes, the price of BTC massively spikes. It's also suddenly much easier to pay people in BTC and not futz with an effective forex trade every paycheck (especially since that's what the government is paying all of its contractors and pensioners in).

<comment><USER15> > forcing people to pay taxes in a particular currency or go to jail creates > demand for that currency

This is true. But, I don't think it backs up your original point:

> the sine qua non of "money" is that you can pay taxes with it.

Reworded to non-latin, I believe this is saying that without taxes there can be no money. That just seems completely ludicrous. Sure, taxes increase demand for money, but that is a far stretch from saying money can't exist without taxes.

<comment><USER16> what he really means, despite the use of "sine qua non", is that the vast vast majority of people really don't like dealing with more than one currency, and if their government uses a given currency, most people will use it because they have to pay taxes with it.

> Sure, taxes increase demand for money, but that is a far stretch from saying > money can't exist without taxes

it really depends what you mean by "money". prior to government meddling in markets, most historical evidence points to economies relying on ad-hoc, non- denominated credit systems (aka, i can drink at the tavern all year because the barkeep knows i'll give him some of my grain come harvest time). these tabs were, notably, not denominated in an abstract currency. it wasn't "you've spent 16oz of gold at the bar this year", it was just "you've had a lot to drink, you better give me a good portion of your harvest".

you only really start seeing professional merchants and money-based trade after currency has been standardized by axial age governments for the purposes of funding their armies. to fund the armies, governments would mint money out of precious metal reserves, pay the army, and require the coins back from the population at large. all of a sudden, the whole population is now legally required to, in some manner, economically service the army (as they are the vehicle through which all coinage enters the market). the armies would then take over neighboring countries, enslave their population, and the slaves would mine more metal for coining. a nice little feedback loop.

anyway, sorry i got a bit off track there, but my real point was: currency was, by all historical evidence, definitely an invention of/majorly promoted by the state.

</comment></comment></comment></comment></comment></comment><comment><USER17> If this claim is true, the author is certainly not the one you should be listening to for such a topic. I suspect a sponsored article paid by a third party, as it seems to contribute to the confusion of the uninformed about bitcoin. But then they say never attribute to malice that which can be adequately explained by stupidity.

>> "The developers of bitcoin are trying to show that money can be successfully privatized."

There is so much bias in this sentence that I don't even know where to start.

First of all, the developers of bitcoin are not necessary trying to show anything, are also not necessary the ones or the only ones. Bitcoin is an experiment, and they say that explicitly everywhere. Second, people encouraging the use of bitcoin are way bigger than what the author seems to imply, It's now an economy worth billions, remember?

>> "sophisticated algorithms guaranteeing the anonymity"

Again, bitcoin does not guarantee anonymity. They say that explicitly here [https://en.bitcoin.it/wiki/Anonymity](https://en.bitcoin.it/wiki/Anonymity)

>> "bitcoin is tiny; at the current exaggerated exchange rate, the total projected volume of "coins" is worth less than the gross domestic product of Mongolia"

_is_ tiny now doesn't give you a clue about it's future size.

"But the monetary philosophy behind this web-based phenomenon can be traced back to one of the oldest theories of money."

Web-based? Seriously?

I honestly stopped reading to do my brain a favor.

</comment><comment><USER18> I don't know if bitcoin is doomed to fail or not but, the thesis of this article isn't credible. There has never been anything like cryptocurrency in the history of the world and this statement may well not apply: "They will fail, because money that is not issued by governments is always doomed to failure. Money is inevitably a tool of the state."

<comment><USER19> Is gold issued by governments?

<comment><USER20> No, and it failed as a currency.

<comment><USER21> Did it? Or was it Bretton-Woods that failed? If I remember my History, Nixon decoupled the USD from gold to regain the ability to devalue the dollar, as a tool for dealing with the huge debt accrued during the Vietnam war.

It wasn't a gold-currency world, it was a world of gold-backed US dollar. It makes a huge difference. While the advantages of being a reserve currency superceded the disadvantages of not having monetary control, Bretton-Woods stood. Once the tables turned, the US ended the gold backing.

Bretton Woods stood for close to 40yrs. The current system has about the same age and much as Bretton Woods is failing because the US abused its position as reserve currency to wage war financed by debt. History does repeat itself, in slightly different color tones...

<comment><USER22> >>Did it? Or was it Bretton-Woods that failed? If I remember my History, Nixon decoupled the USD from gold to regain the ability to devalue the dollar, as a tool for dealing with the huge debt accrued during the Vietnam war.

The point is that it failed as a currency as soon as it lost the government's backing.

<comment><USER23> The gov't has outlawed gold and silver as currency in favor of its fiatbux. If my friend and I like eating Skittles then some bully come slaps us around if we eat them, that isn't failure of us liking Skittles.

<comment><USER22> No, the government came and said you can't use gold or silver to trade Skittles, because neither material is a convenient medium of exchange (which is unarguably correct).

<comment><USER23> Fiat money has been around not even 200 years while various commodities used in coins worked fine for much longer. Oh but to you it isn't convenient somehow and this is "unarguably correct", lol whatever, spoken like a true state apologist I guess. Go on believing your own alternate history where the force and fraud of government are pretended away.

</comment></comment></comment></comment></comment></comment></comment></comment><comment><USER24> At Soylent, we have been accepting Bitcoin using coinbase. The decision to do so was based on marketing and the anticipation that not many people would actually use Bitcoin and we wouldn't have a large risk exposure. To date only 130 people out of 12,000 have pre-ordered Spylent using Bitcoin. Our total risk exposure was less than 1% of total revenue. The recent rocket ship rise in a Bitcoin valuation has valued our Bitcoins at 10% of total cash from revenue. So far, the decision to accept Bitcoin has been a tremendous success.

The recent rise in Bitcoin valuation is speculation based on merchant trends. Well established merchants in Asia are starting to accept Bitcoin. The total valuation of Bitcoin is still around $15Bn. The total value of annual US domestic cash flow is somewhere around $15T. Think about the potential of Bitcoin. Highly unlikely? Absolutely! But think about if you woke up tomorrow and Amazon or Apple announced that they would start accepting Bitcoin? What do you think the valuation would be?

<comment><USER25> Out of interest, do you know how standard it is for merchants to hold onto bitcoins after accepting them? I always figured they would be converted pretty much straight away, but with that risk/reward profile maybe others are doing something similar?

<comment><USER24> I wish I knew! From our perspective, because our total risk exposure is very minimal (again less than 1% of total revenue has come in from Bitcoin) we don't have a need to convert into cash immediately and can instead hold on to them for future use. I imagine every business does this risk assessment to determine their bitcoin conversion policy and all have different sensitivity to risk (i.e. silk road 100% bitcoin revenue > soylent 1% bitcoin revenue).

</comment></comment></comment><comment><USER26> This article gives many headaches. It's a bit nonsensical to try and peg Bitcoin to right wing ideology. It's even more nonsensical to associate Hayek with Thatcher and call Hayek a "darling of the right".

The guy was every bit a classical liberal, like nearly all of the US' founding fathers, emancipationists and suffragettes. Classical liberalism is decidedly anti-collectivist and modern conservatives are much more collectivist than individualist: "support our troops", faith-based education, corporations as people. Classical liberal ideology predates the modern conservative and liberal thought that grew from it and you can't just decide to associate him with modern ideology.

I'd even say this article is deliberately deceptive.

<comment><USER27> Apparently historical fact is nonsensical now?

[http://www.pieria.co.uk/articles/lady_thatchers_relationship...](http://www.pieria.co.uk/articles/lady_thatchers_relationship_with_friedrich_hayek_and_milton_friedman)

Thatcher was one of the primary reasons that Hayek had a resurgence of popularity in the 1980's.

</comment></comment><comment><USER28> "After all, no bank or bitcoin-emitter can be as public-minded as a government..."

Ahem. [http://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe](http://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe)

You can't slap a sticker saying "public-minded!" on a government, and expect it to therefore be public-minded, any more than you can slap an "environmentally friendly!" sticker on a coal power plant and expect it to stop polluting.

"What kind of role, if any, should a government take in supervising a parent's choice of genes for their child? Could parents deliberately choose genes for schizophrenia? If enhancing a child's intelligence is expensive, should governments help ensure access, to prevent the emergence of a cognitive elite? You can propose various institutions to answer these policy questions—for example, that private charities should provide financial aid for intelligence enhancement—but the obvious next question is, "Will this institution be effective?" If we rely on product liability lawsuits to prevent corporations from building harmful nanotech, will that really work?

I know someone whose answer to every one of these questions is "Liberal democracy!" That's it. That's his answer. If you ask the obvious question of "How well have liberal democracies performed, historically, on problems this tricky?" or "What if liberal democracy does something stupid?" then you're an autocrat, or libertopian, or otherwise a very very bad person. No one is allowed to question democracy.

I once called this kind of thinking "the divine right of democracy". But it is more precise to say that "Democracy!" functioned for him as a semantic stopsign. If anyone had said to him "Turn it over to the Coca-Cola corporation!", he would have asked the obvious next questions: "Why? What will the Coca-Cola corporation do about it? Why should we trust them? Have they done well in the past on equally tricky problems?""

[http://lesswrong.com/lw/it/semantic_stopsigns/](http://lesswrong.com/lw/it/semantic_stopsigns/)

<comment><USER29> He didn't seem to go beyond backyard of his suburban American home with his analysys.

Lots of countries have explicitely recognized that putting control of the money in the hands of public-minded government is often horrible idea. Those countries created separate institutions that are responsible only for keeping value of money stable by regulating its supply. They don't care about what public or government wants. They don't care what effects on the economy will their decissions have. They just have to keep inflation around 2-3% by adjusting rates.

USA money controller for some reason has to support the economy with their decissions. The only reason they get away with it without hiperinflation so far is because dollar is strongly tied to the oil and because USA after the WWII had thriving economy, not economical wasteland like almost all other countries that took part in the war.

</comment></comment><comment><USER30> The author may or may not know what he's talking about when it comes to money; that's not something I have more than a layman's understanding of and so I can't judge his competence.

He _doesn 't_ know how Bitcoin works, though. Claiming it's an attempt to "privatize money" (huh?), or that governments will "take it over" (how? Building mining farms forever so as to maintain >50% of the network hashrate?) suggests he thinks there's someone in control of it. That's kind of like suggesting there's someone in control of TCP. There's a standard, sure, and there's people who develop and maintain that standard, but if their actions ever significantly diverged form the interests of users there'd be a brand spanking new standard pretty quickly.

<comment><USER31> A government with resources like the US or China could easily to a 51% attack on bitcoin and reject any transactions they didn't like. They could "take it over" and the cost to do so would be little more than a rounding error for them. How would you make a new standard if, say, Russia keeps jumping in and 51%ing your transactions? You would have to centralize the mining to be safe from them. This kills the bitcoin.

</comment></comment><comment><USER32> The argument boils down to:

1\. Money has always been controlled by governments,

2\. So money always will be controlled by governments.

3\. Bitcoin is identical to money, but

4\. Bitcoin cannot be controlled by governments,

5\. Therefore bitcoin is doomed to fail (no date specified).

I'm not sure any of the premises are beyond scrutiny, or that the conclusion is even meaningful.

Anyone can say that nothing lasts forever. Let us know when someone predicts that bitcoin won't last out the year.

<comment><USER23> 1 is false and even if it weren't the transition to 2 is fallacious.

</comment></comment><comment><USER33> Calling BitCoin "privatized" misunderstands its nature. While it's true that there are large players invested, crypto-currencies are protocols, and cannot (reliably) be owned or controlled any more than TCP/IP or HTML.

Meanwhile, fiat currency (as we know it) is not merely a tool of state; it is a command-and-control tool of the government-industrial complex, a creation not only of the U.S. tax code, but by massive private banking institutions who steal value from the public through complicated mathematics.

I actually quite like Graeber and his ideas; I think crypto-currencies come closer to fulfilling "an intricate structure of social relationships and spiritual beliefs" than the U.S. dollar ever could.

<comment><USER34> The whole article (willfully?) misunderstood Bitcoin's nature. It even implied that Bitcoins are issued by Satoshi himself.

I think it's good to take a critical look at Bitcoin when the price rises so rapidly, but this article is more like a political hit piece than anything with economic merit.

<comment><USER11> According to Shamir's paper, that's 95% accurate. Theoretically you're right. Practically, you're wrong.

</comment></comment></comment><comment><USER35> Edward doesn't know what money is. Whether it is issued by a government or not is a matter of convenience (or legal issues) and not a condition.

Everything can be a currency satisfying these criteria:

       (1) enough quantity

       (2) limited quantity

       (3) convenient to move/exchange

       (4) widely accepted

That's it, nothing else.

All currencies is based on "faith". Any currency is doomed if it looses trust. For instance cigarettes were used as currency in Germany between world wars.

And it seems to me that Edward admits that at the end: "governments are not fully living up to the responsibility". Yep, he is contradicting the claim that monetary policies are independent of the government. They are not and you can see it in the price of gold.

Since bitcoin is based on math and official currency on politics, bitcoin is inherently more trustworthy. Its deflationary tendency, limited supply, and lack of physical presence are common drawbacks of bitcoin as a "common" currency. Not trust. And they are actually advantageous for its particular area.

<comment><USER27> Who does understand what money is? We have debates it for centuries. Money is both trust (credit) AND commodity. Though most economists religiously pick one view (Keynesians) or the other (Austrians).

Being based on "math" is nonsensical. Money is based on math, that's the whole reason it evolved - to keep track of debts!

The question is one of the axioms behind the monetary system. Bitcoin's axioms are every bit as political as a fiat currency, the only difference is the entity that made the political judgement.

Users of Bitcoin must trust in the algorithm, as users of currency must trust in the central bank.

</comment></comment><comment><USER36> My prediction is that bitcoins are midway through a short-lived bubble and then rapidly fall to approximately 0, and in a few years people will look back with the disbelief now reserved for pets.com. The hype - get in right now and get rich, or you'll miss out and kick yourself - reminds me of 1999. My in- laws were talking about bitcoins yesterday, so bitcoins are getting the attention of the public at large; I take this as a bubble sign rather than a sign of success. Other factors: ease of switching crypto currencies to something else. Zero intrinsic value (unlike e.g. gold). Price manipulation. Risk of theft. Possibility of spectacular software bug blowing everything up.

[I'm not interested in debate; I just want to give my prediction. And if I'm wrong, I will be sure to add this to my list of spectacular mistakes.]

<comment><USER37> I wish there was a reputable market for shorting bitcoins. It'd be nice to earn some interest on my long position while providing the naysayers a chance to bet against it. It'd also help with the volatility.

<comment><USER38> Shorting bitcoin seems like a bad idea.

[http://i.imgur.com/GOYWUMo.png](http://i.imgur.com/GOYWUMo.png)

<comment><USER37> It would help if, for example, you needed to have BTC on hand for your business but you wanted to hedge away your exposure to the exchange rate with the USD.

</comment></comment></comment></comment><comment><USER39> There are many arguments for and against Bitcoin. Only time will tell.

But I have three comments:

1\. Personally,

I would probably be - out of self interest - a strong supporter of Bitcoin if I had any, or would have belonged to the first miners. But I have no BTC, and such I only observe as a bystander how this technology develops.

2\. Energy and intrinsic value of BTC

For me, the argument that cryptocurrencies can be made out of thin air and thus BTC is just some digital data does not hold. Gold can be mined from many sources as well (e.g. in can be found in the oceans as Au2+). Or another currency can be created and printed/minted. However, with a currency such as BTC it takes a lot of energy to fire up such a system until a certain level of penetration is reached, and it takes energy to maintain it. Actually, this is one of the greatest drawbacks I see: every BTC that is created now now will be more expensive in terms of energy cost. I prefer a one time energy and material cost for the creation of a currency, and minimal energy/material costs that come with its operations.

3\. Penetration and access.

I wonder if it might not have been better to distribute all BTC among all of mankind. That way, everyone would be in possession of an instant amount of currency and could readily engage in trading. The early mining process support the creation and distribution of bitcoin but gives extreme gains to early adopters. A better initial distribution might have helped to position BTC as the dominating cryptocurrency. Right now any follow up can beat BTC if it excels the parameters that define the adoption and usage rate of the currency as trading medium.

</comment><comment><USER40> My prediction is that Bitcoin (or some other alt-coin/cryptocurrency) will eventually become a single worldwide currency. It's reached a point where if a government tries to regulate it too tightly, they will effectively be shooting themselves in the foot and cutting their country off from outside trade.

The result is that the cryptocurrency will continue to gain momentum until it is used everywhere worldwide. This will eventually lead to a single worldwide government or an agreement between all countries across the world to act uniformly in regards to the currency. This will become a necessity to properly administer taxes and/or settle cross-border contract disputes.

Once you have a single government, worldwide government ids will be initiated (or all local ids, like driver's licenses will require integration with a wordwide database). At this point, the single government will then co-opt the cryptocurrency or initiate a new cryptocurrency and require everybody to tie their id to their cryptocurrency usage. The reasoning will be to crack down on crime, tax evaders, etc. Because it's a one world government or all governments are working together in lock-step, they would then have the capability of controlling/banning the cryptocurrency. Anyone not properly linking their identity to the currency will be breaking the law, and it will be very difficult to participate in commerce because there will be no more physical cash or coins.

Either way, the only way I see this playing out is a currency that most people assume was initially intended to break from government control will eventually lead to ultimate government control.

As a side note, I realize the concept of a one world government is controversial, but my personal opinion is that it is an eventuality.

<comment><USER41> Single world wide government? ... Sheesh ... Don't hold your breath.

</comment></comment><comment><USER42> The main problem with cryptocurrencies, as I see it _today_ , is that there is no motivation to spend it. Inflation actually has a very important purpose - it keeps the currency liquid, if you hoard money you lose money. From the Average Joe's inflation might seem like a bad thing but the truth is what worth is a currency is nobody is willing to exchange it? "Money" is a lay-mans term that isn't really used by professionals within the economic industries; in nearly all cases it is referred to as "liquid". Liquids are supposed to flow and it is a very important feature of currency.

The current hyperdeflation is encouraging people to hoard their bitcoins; which means that they are behaving a lot more like a commodity - and there-in lies the problem: they are deluding people. Not only do they have the word "coin" in their name but they also fall under the category of "cryptocurrency".

The problem is that people are so firm in their belief that inflation is one way for a government to screw them; that they will change their argument (no, it's a commodity vs. no, it's a currency) depending on which argument you present to them.

What we need a cryptocurrency that penalizes hoarding; or at the very least in some way encourages spending (or exchanging).

Let's say that hypothetically I don't know what I am talking about; and that hypothetically bitcoin becomes a universal currency as many would have it (all other currencies are abolished). Now consider the hypothetical scenario where you are selling property and have a family to feed at home. You spend your day showing people properties and nobody buys - why? Because their currency will be worth a lot more tomorrow than the fixed asset you are offering. The economy will collapse.

</comment><comment><USER43> My confidence in bitcoin has been substantially increased after reading this article. It is becoming increasingly easy to see through the bizarre thought patterns of its doubters.

</comment><comment><USER44> This article is posted on DealBook, a financial-news website founded by Andrew Ross Sorkin [1]. This person has always had an anti-Bitcoin stance, probably because he clearly does not understand Bitcoin at all (see him interview the Winklevoss twins about Bitcoin: [http://www.youtube.com/watch?v=1oGuKEazS5o](http://www.youtube.com/watch?v=1oGuKEazS5o) ) and people tend to be dubious or scared by something they don't understand.

[1] [http://en.wikipedia.org/wiki/Andrew_Ross_Sorkin](http://en.wikipedia.org/wiki/Andrew_Ross_Sorkin)

</comment><comment><USER45> Articles like this are actually quite revealing. It's incredibly interesting to watch "experts" comment on bitcoin as they study it, now, for the first time and have to think about it. Like a lot of people my initial impression was that of scam (it lasted for three hours) then realization of the ingenious concept with the thought that "this will not survive long enough to become what it is intended for". So I kept selling most of the coins I mined all throughout 2012. Three "bubble pops" later, I could see my "confidence"/"trust" in bitcoin shift. It really has to go through these intense run-ups and crashes to actually prove itself. If it continous to, it will appear as an extremely trustworthy long-term store of value, independent of any central agency and as difficult to slay as file sharing. At which point more people will pile in, to protect their wealth, again, long-term. Money they could afford to lose, initially. What we might be observing could be a Kurzweilian visualization of an exponential graph similar to technological break-throughs from the Dark Ages to the Modern Age. Bitcoin's wealth transfer and processing network seems to be on a similar level (monetary internet) regarding markets, finances and currency. If it succeeds a whole lot of middle-man industries will meet their demise and capital allocation would be supercharged. The price of bitcoin just reflects that realization on a (global) level.

<comment><USER46> I don't get that; runs and crashes means your confidence is improved; that bitcoins have 'proved themselves'? I would argue just the opposite. No responsible financial counselor would recommend something as volatile as bitcoins; no business can survive the busts ("Just wait a few months Mr Vendor; my money will be worth something again then I promise!")

So its used by - who? Speculators and suckers?

<comment><USER45> I agree with you. Let me explain - I think you have to separate bitcoin, the protocol and bitcoins, the currency. Secondly, if you separate the two functions of bitcoins as a storage of value and bitcoins as a currency, it might make more sense. After each of the last three big crashes, the price built a new base at twice the initial level before the bust and then beat the original high in a relatively short amount of time. This has been going on for 3 years now. If I want to save some money that I can afford to lose potentially, with the main rational that it cannot be inflated long term and can "forget" about (so I don't lose sleep over the fluctuations) now I found a secure home for capital that I don't want to touch. It took a long time for me to develop that confidence (I daytraded in the past, esp. penny stocks, so "supernovas" are not something new). Now, if (the big question of course) bitcoin as a currency continues to be adopted, a bitcoin will be unaffordable and most trading will be in the μBTC etc range we could see it stabilize due to the sheer volume of participants. However, even if that would never be the case, bitcoin as a protocol could lead to innovations in the entire supply chain that make transactions of raw material all the way up to product pricing instantaneous.

<comment><USER46> Confidence is a funny word for gambling. Secure an odd choice for something defined as volatile. If you need money and your bitcoin savings is worthless, you lose.

Volume of participants has had no stabilizing effect on bitcoins. They suffer in spades the destabilizing properties of real currency, with no corresponding 'federal reserve' able to (try to) control fluctuations.

</comment></comment></comment></comment><comment><USER47> "After all, no bank or bitcoin-emitter can be as public-minded as a government, and no private power can raise taxes or pass laws to unwind monetary excesses."

I am not an expert by any stretch of the imagination, but this seems like a big point in the authors argument.

Isn't the removal of this flaw baked into bitcoin by it's nature?

" Besides, if bitcoin ever really started to take off, governments would either ban it or take over the system."

Isn't this pretty damn hard as well?

<comment><USER48> _Isn 't the removal of this flaw baked into bitcoin by it's nature?_

No, it's not. Bitcoin isn't backed by any political will of any kind. It is a sheer market. That is the author's main point. That since it is money not backed by the, hopefully, benevolent will of a state it will be subject to the whims of market makers or the panic of the crowd. I think the author of the article is quite correct in making this point.

History has repeatedly shown that the mercy of the state is better than the chaos of the market, at least over the long term. Yes, every once in a while the state will take away a punch bowl that it didn't need to take away, but that doesn't mean that their overall goals aren't worthwhile. More rarely the state clamps down too hard, but history shows that in these instances the market's ability to correct an overbearing state has greater celerity than the body politic's ability to overcome the enormous chaos of a completely free market.

History isn't even necessary in the argument though. We all get to vote. Bitcoin has already failed as a currency. It is subject to incredible moodiness and instability, which are the characteristics of a very poor currency indeed. Currency, in a well functioning economy, is supposed to be the most stable and predictable security that one can invest their wealth; in theory, it is not even supposed to be a security. Bitcoin may have made some people wealthy, but I'm not going to trust all of my wealth in it like I would American dollars.

<comment><USER49> > Bitcoin has already failed as a currency. It is subject to incredible > moodiness and instability, which are the characteristics of a very poor > currency indeed

Bitcoin has to climb up to a stable value, once.

The idea is that it will be stable once it did.

</comment></comment></comment><comment><USER50> That was a horrible article. The culmination of the author's intellectual laziness is the paragraph

"Of course, the global monetary system has suffered from appalling management in recent years. The authorities, especially in the United States, first allowed banks to act almost as if they were in a right-money world, lending and speculating wildly. That led to a typical right-money disaster — a sudden loss of trust and the failure of leading institutions."

The Federal Reserve has the ability to set interest rates in the way it deems best for the economy. There is nothing "right wing" about the way they set very low interest rates before the financial crisis. There is no way that private money could ever replicate the kind of economic stimulus that the Federal Reserve was able to engage in.

Anyway I don't believe that bitcoin will become much larger (or smaller) than it is now. Not for any deep reason, but because it is inconvenient, and commercial banks are already very good at what they do. Hopefully it will provide enough of a shock to the system to cause a reform in the current system of merchant fees for credit cards, which are an aberration that should have never existed in the first place.

</comment><comment><USER51> Why did the author of that article have a different title when the same article was posted on the Reuters blog? [1] Over there the article headline is: "Bitcoin is a step back not forward"

Is that his choice or the editors?

[1] [http://blogs.reuters.com/edward-hadas/2013/11/27/edward- hada...](http://blogs.reuters.com/edward-hadas/2013/11/27/edward-hadas- bitcoin-is-a-step-back-not-forward/)

<comment><USER52> The New York Times editors write all the headlines, even for op-eds.

</comment></comment><comment><USER53> A Prediction: All Currencies Are Doomed to Fail _(but probably not for a while)_

</comment><comment><USER54> I frankly just thought this was poorly written. I tried to do a tl;dr, but found it hard. Here is my best shot:

1) "currencies...increase the efficiency of barter" 2) "Barter played a tiny role in all premodern economies" 3) governments have tended to issue currencies 4) Bitcoin is inferior because it lacks "the backing of a political authority" or the ability to "raise taxes or pass laws to unwind monetary excesses" 5) private money generally has uncertain value and legal status 6) government might shut Bitcoin down 7) Bitcoin is a part of "Right Wing Money" 8) all effective money is "left money" and "state backed. The recent banking system is a part of "Right Wing Money". 9) Bitcoin is for criminals and speculators

I think there have been much more intelligent and nuanced opinions on why Bitcoin might fail, I wouldn't put this on the list.

</comment><comment><USER55> Fun fact: The US did have competitive currencies for a bit, during the Antebellum and Civil War period.

[http://www.dartmouth.edu/~jshambau/Papers/AntebellumExchRtsJ...](http://www.dartmouth.edu/~jshambau/Papers/AntebellumExchRtsJCS-5-2005.pdf)

There were a lot of bank busts and currency scares.

<comment><USER56> Bring up historic facts in a bitcoin discussion is useless. John Law is always a hero for awhile.

</comment></comment><comment><USER57> I think this guy doesn't get that money is just an efficient way to trade debt. The reason other currencies have failed is that they haven't been as efficient, and also have been illegal. Crytocurrency may end up being more efficient. Especially for international transactions.

<comment><USER57> Also, bitcoin is already -much- better at moving money around the world. 8 cents for a bitcoin transfer or the 45 dollar wire transfer?

</comment></comment><comment><USER58> Here's what I'm constantly failing to understand.

In the tech sector, new things come along every day. We see new ideas, approaches, left-field thinking on a steady, almost predictable pace.

We also see that, more often than not, the very first version of the thing is not the thing that lasts. It's a proof. It mostly works. There are problems. It sticks around for a bit, till someone else comes up with a better idea, implementation, etc, which takes hold. And then something else replaces that.

If you believe Bitcoin is Money 2.0, that it is destined to replace the USD, or other global currencies, you clearly accept that a newer, better thing is destined to replace an old flawed thing.

If you don't believe in Bitcoin, you cannot deny that while IT might not be the thing to take down the USD, something else might.

So why does every article treat Bitcoin as a yes/no proposition? Either it is a moonshot success, or tulips? Either it changes the world and creates new millionaires, or it joins the pantheon of quick money schemes that tempted and fooled so many in the past?

I realize we're talking technology here, but it doesn't have to be binary.

Bitcoin, the software, solved a few problems thought unsolvable. It showed that you can decentralize the ledger, with some amount of stability. It showed you can solve the double-spend problem, and create some guarantee of transactional consistency.

But bitcoin has a few obvious issues. It is illiquid, and deflationary. It is slow (unless you just pretend its fast and hope for the best). It is only basically anonymous, though not foolproof. It is easy to steal, and easy to destroy.

Some of these problems are solvable, and some are inherent to BTC itself and cannot be removed from BTC.

But that's not to say something can't come along with all the good properties of BTC and fewer of the bad. Or none of the bad. That's not to say there's not some kid sitting at a computer thinking of a better way.

</comment><comment><USER59> Bitcoin may have already failed as a currency. However I think it has spectacularly succeeded as a store of value - an alternative to gold, if you will. It has all the benefits of gold, none of its problems (bulk), and some brilliant advantages: ease of handling/transportation/transferring (maybe transferring it is too easy - make an unlucky typo and your savings are most probably lost for good - but that's a side effect of its efficiency).

FWIW, unless governments start to intervene by outright banning it, I suspect Bitcoin will first become the ultimate storage of value, then its price will become less volatile and with time stable enough to start using it as a currency.

<comment><USER41> Well gold has this one minor benefit test it is intrinsically valuable ... That and you don't have to. A nerd to understand how to use it.

<comment><USER59> > gold has this one minor benefit test it is intrinsically valuable

You can't explain the high price of gold merely by its intrinsic value. OK, it's shiny, but there are other sniny metals. It can be used in electronics, or as filling/crown material - but it was valuable before people started using it for that. So much for the intrinsic value.

So it must be something else that makes gold as valuable as it has always been. It's rare, fungible, divisible, portable - an ideal medium for storing value.

Well, bitcoin is all those things and more.

<comment><USER41> You just waved your hands around a little. Gold has intrinsic value. You say other metals are shiny ... Well ... wow ... They have intrinsic value as well.

</comment></comment></comment></comment><comment><USER60> The points of the article summarized:

1) money must come from the state (because I say so)

2) bitcoin is bad because it appeals to "right wing" people and I'm (presumably) left wing (my enemy's friend is my enemy?)

3) free markets caused the financial crisis (not massive gov money printing and trillions in implicit backing of credit markets) so free market money must also be bad

4) the value of bitcoin disappears if people loose trust but this could never happen to a gov currency (even though it happens several times a year with fiat currencies around the world)

5) fiat is fine so we don't need a replacement (as long as we ignore the trillions in debt transfer from the bankrupt banks to the bankrupt governments)

</comment><comment><USER61> Excerpt from the article: "The developers of bitcoin are trying to show that money can be successfully privatized."

\-- Not really. Bitcoin is open sourced. They did not try to privatize bitcoin.

Excerpt from the article: "The currency's issuer is an unknown computer programmer"

\-- No, bitcoin is not issued by Satoshi Nakamoto in the sense that cash is printed by the government. The currency is generated by mining, which can be participated by anyone with the right equipment.

I do not have a better crystal ball than anyone here, but the article's author made a mistake in trying to shoehorn bitcoin into his own concept of currency.

</comment><comment><USER62> Lol, a Keynsian claiming Hayek is an idealist. NYTime is the new Onion, right?

</comment><comment><USER63> Oh no! The New York Times says a new technology is doomed! Quick, do the opposite of whatever they say!

</comment><comment><USER64> As I see it, both governments (states) and the bitcoin algorithm are mechanisms that are endorsed by their community to simplify a control problem.

Governments have more mechanisms to adapt to changes in public opinion, while bitcoin deals with a more specific problem. If bitcoin loses endorsement, it will be replaced (traded) for other goods, probably the next generation cryptocurrency. The same goes for governments that don't adapt, and their currencies.

<comment><USER65> I really like that description.

</comment></comment><comment><USER66> The three main reasons the article gives for why bit coin will fail:

"Its value is uncertain, its legal status is unclear, and it could easily become valueless if users lose faith"

Is this not also true of state run currency? Have we not seen massive deflation during the great depression, in Israel, in Russian and in many other part of the world?

The legal status is an interesting one, but given that the feds got some 31million (and rising) USD worth of BTC from the Silk Road seizure I doubt they will make BTC illegal.... But it could happen in the future.

Loosing faith, well believe it or not this is true of all currencies. That is why it's called Fiat, there is nothing other than faith behind currencies.

So really the only issue is the legality, which basically translates into government regulation, which is what we already have for "state run currencies", so at worst BTC becomes regulated by the state and becomes more of a "state run currency". In some views I guess that is failing, but that means that worst case it will end up like cash but with a lot of technical benefits.

I think the real issue with BTC is deflation, and that will probably continue for a long time. At least until all the BTC are out, if not for much longer.

</comment><comment><USER67> At the beginning I thought so too, that BTC is doomed in the long run. But after the spike prices and a careful re-reading the only really thing that still puzzles me is the D. Ron and A. Shamir paper[1] released in 2012. If this paper holds true then a handful of early adopters holding more than 95% (the paper states 98%) of the currency, will and can bring the currency up and down overnight and their extremely powerful position in the BTC market cannot be challenged.

Bitcoin has two qualities that are unique:

1) Extremely high degree of privacy (you can put 50.000.000 USD worth of USD in a USB stick and pass through 7 airports, or print them in an A4 page encrypted with GPG, and no one will know).

2) Transaction speed: You can send money from Iceland to China (even huge amounts) very quickly (less than 1 hour), with no third party being involved.

There will be always a market to request this kind of qualities. However if any of those two qualities goes missing for whatever reason it is doomed. Another way to kill BTC would be to create another crypto-currency that have additional features and would kill BTC on the spot.

[1] [http://eprint.iacr.org/2012/584.pdf](http://eprint.iacr.org/2012/584.pdf)

<comment><USER59> > Extremely high degree of privacy (you can put 50.000.000 USD worth of USD in > a USB stick and pass through 7 airports, or print them in an A4 page > encrypted with GPG, and no one will know).

Even better, you can keep those millions in your head, using a deterministic wallet (google "brainwallet").

In short, you keep a password in your head, and when you are ready to spend, all you need is access to an Internet-connected device - using that password you can reconstruct your private keys and import them into a bitcoin client.

</comment></comment><comment><USER68> I love how NYT puts it - private money is bad, and if it is not, governments would kill it it anyway, by whatever means necessary. Thus, private money is bad, and government will be doing you a favor by killing it by whatever means necessary. Oh yes, and there's no private money so it's clearly impossible in reality to have it. Which proves again the government is right to kill it.

</comment><comment><USER69> > They will fail, because money that is not issued by governments is always > doomed to failure.

Stopped reading right there. Does this author actually believe that money is issued by governments?

Why do you think your notes have "Bank of England" or "Federal Reserve", or whatnot written on them?

It's because they're issued by those _private_ institutions. They're not government bodies.

Of course, the government has the alleged power to regulate those private institutions, but in reality it works the other way - those private institutions have the real leverage to regulate governments.

It's because the governments are in debt to the private institutions that they can force the government to back their monopoly issuance of currency, and of course, they can force the government to privatize publicly owned assets to pay back the debts.

Once you see past the very basic myth that "governments issue money", you quickly realize why politics is theatre, and any chance of change to the status quo won't happen through government. Bitcoin is the game changer.

</comment><comment><USER70> Bitcoin is "doomed" to fail (as a currency) by the simple fact that the supply is capped at 21 million.

This relegates it to the status as a "virtual collectible" (as someone so humorously put it).

Maybe Bitcoin 2.0 will be smart and remove a cap (or build in the ability to allow itself to float).. but Bitcoin as it is isn't flexible enough.

<comment><USER71> Bitcoins are divisible to 8 decimal places. Why are more needed?

<comment><USER72> They are infinitely divisible

<comment><USER71> That isn't what the documents on the web say: [https://bitcointalk.org/index.php?topic=4816.0](https://bitcointalk.org/index.php?topic=4816.0)

What are you basing your statement on?

</comment></comment></comment></comment><comment><USER73> I think BC is a fantastic platform--I am sure the currency will see some massive spikes (we are on it) and bigger troughs--but to make the assertion that it will completely fail is a bit ignorant. The only downside I see right now is the valuation of goods pretty much has to keep a real-time pricing engine in place for anyone that wants to take BC. Much like in countries that experience super high inflation or deflation...they have to first look up the value of the currency before they can complete a transaction which is a total pain. Right now there isn't much risk from the perspective of a vendor b/c the value of the currency keeps going up compared to other currencies. The second that trend goes the other way, me as a vendor might not be so interested in taking BC anymore unless it's totally liquid and I can sell it on the market instantaneously.

</comment><comment><USER60> The points of the article summarized: 1) money must come from the state (because I say so) 2) bitcoin is bad because it appeals to "right wing" people and I'm (presumably) left wing (my enemies friend is my enemy?) 3) again, money must come from the state (because I say so) 4) free markets caused the financial crisis (not massive gov money printing and trillions in implicit backing of credit markets) so free market money must also be bad 5) the value of bitcoin disappears if people loose trust but this could never happen to a gov currency (even though it happens several times a year with fiat currencies around the world) 6) fiat is fine so we don't need any replacement (as long as we ignore the trillions in debt transfer from the bankrupt banks to the bankrupt governments)

</comment><comment><USER20> I think Bitcoin will succeed like gold has succeeded--as a highly liquid tradable commodity, which can be used for transactions as a form of barter. It's already succeeding in this way.

It won't succeed as a currency because it can't maintain a stable value-- again, just like gold.

<comment><USER74> So your choices are to maintain cash resertves in USD and take a guaranteed 2% inflation loss on the chin, or keep it in Bitcoin with unpredictable, but upward trending movement (as coins are removed from the pool with loss, death, etc.). I'm not sure that decision is so clear-cut.

<comment><USER6> Most people don't keep significant cash reserves, and that's a good thing. Dollars that people sit on are lazy dollars. At the very least, you can sink them in treasury bonds and the US government will put them to use -- but that debt is still denominated in dollars.

At best, Bitcoin will end up as yet another option for investment. The deflationary trend and lack of legal tender status make it a total nonstarter as a currency.

</comment></comment></comment><comment><USER75> The author's argument goes like this: Bitcoin is not backed by The State. The State makes currency. The State is all powerful. I am not capable of conceptualizing a currency that is not backed by an all powerful state, therefore Bitcoin is doomed to fail.

Terrible argument.

</comment><comment><USER76> Bitcoin is revolutionary. THAT is most likely true.

Is it doomed to fail? Perhaps it is, but things are not quite as grim.

Here is what is likely to happen as a result of bitcoin: 1\. The future of banking transaction fees is bleak - The current financial systems will get threatened and adapt. Here bitcoin will succeed. 2\. Bitcoin is used as proof of concept and paves the way for a world currency, think euro but global.

The two points above are definitely wins. If you have any problems with those playing out, its likely you have the same concerns about bitcoin and just haven't realized it yet.

Here is what would likely happen to bitcoin v1, it will fail to become a real currency.

Its _currently_ morphing into a speculative store of value. I'd like to say its like tulips, but I'd be wrong, as it is definitely more useful than tulips. On the speculation front it may play out like the tulip mania/bubble, but I hope I'm wrong about that.

The reason for it to fail as a currency is the very reason for the spike in interest at the moment. Exchange rates seem to be soaring and may continue to soar which would make people vary of buying some thing worth $1000 USD for 1btc if there is a possibility that deferring a purchase by a couple of days could offer a notion discount of x% from the hope of the value of btc increasing. If you could wait a few days for the purchase and buy the $1000 item for 0.8btc, who wouldn't wait?

On the flip-side, if you bought 1btc for $1000 to buy something but the value of btc suffered a temporary squeeze to the effect that 1btc = $800, hence the same item now costs you 1.25btc or 25% premium to what you were willing to pay. Hence who would be willing to pay extra if you were sure the value of btc would rise?

This applies to all commercial transactions. In 90%+ of cases people will likely defer spending btc unless the value was at the same level +/\- 5% as their purchase price.

Bitcoin as a currency/for commerce will leave every consumer in a constant state of buyers remorse and THAT will be the real reason for its failure.

</comment><comment><USER77> With all the news about the meteoric rise in the value of BTC and many folks presumably sitting on a huge paper profit, I haven't seen (or just haven't be looking hard enough) for stories along the lines of: 'I sold my modest holdings of BTC and was able to repay my mortgage; I don't have enough money to stop working but at least I fully own my home and can work four days a week instead of five and spend a bit more time with the kids, etc, etc, etc'.

Or is the unreported reality of BTC is that it is just too difficult to cashout in a big way due to liquidity/transaction fees/general sketchyness of exchanges that will transfer BTC to hard currency?

<comment><USER78> You can find most of those stories on /r/Bitcoin. Off the top of my head: the Norwegian apartment, the asshole, the nurse, & the WalMart clerk. (And a few counter-stories like the Brooklyn embezzler who has taken a $1m inheritance and squandered it down to ~$300k by astonishingly bad Bitcoin trading over the past year.)

</comment></comment><comment><USER79> Gold and silver etc. are all alternative "money" "loosely" coupled with dollars. Basically Bitcoin is not different form that.

The reason I believe bitcoin will continue to exist and even be supported by states like USA is because transactions are public and traceable. The identity of wallet owner can sometimes even be determined through that.

I guess Banks feel threaten because this currency is not (yet) ~ 80% depth. It is so by design. The depth bubble grown by banks and countries will soon or later burst. Get ready for that moment. I'm not sure that bitcoin is the best placement, but in an placement diversification strategy, this would definitely be one of my picks.

</comment><comment><USER80> "They will fail, because money that is not issued by governments is always doomed to failure. Money is inevitably a tool of the state."

How about gold? Bitcoin can just as easily be seen as a limited commodity as as currency. It's even mined :).

<comment><USER6> Gold has intrinsic value. You can use it to make beautiful things, and it serves as a display of wealth. That value will always be present in the absence of a state, although it would be substantially less without a state.

Bitcoin has no intrinsic value. It's a financial instrument.

</comment></comment><comment><USER81> One thing I never quite understood, but haven't really heard mentioned, is what makes _this instance_ of a digital currency special. If I were to start another pool of bitcoins, with it's own mining etc. (like say, litecoin, but not necessarily technologically different from bitcoins) is the only disadvantage, from the perspective of adoption, that it wasn't the original, and is a little less prominent?

If so, I can empathize with the "losing faith" perspective. It only takes the tiniest bit of squinting to see bitcoins not at fundamentally limited, and therefore currency-worthy, but as completely unlimited.

<comment><USER82> The computing power directed at bitcoin is already huge. You would need to persuade those miners (who also verify transactions don't forget) to switch to your new coin. If they stop mining bitcoins then they fall behind their competitors. They then have to swallow the risk of mining a new coin that has no users yet.

<comment><USER81> But presumably the computing cost would be much lower for the new coin, since it'd be earlier on in it's mining history. Who knows where the respective expected values stabilize.

Also, what if the new coin has some minor technical improvement? How do we know that won't outweight the established network effects?

<comment><USER82> We don't know any of those things. That's why it would be higher risk to start mining it. The rewards might be huge or they might be nil.

</comment></comment></comment></comment><comment><USER83> _They will fail, because money that is not issued by governments is always doomed to failure._

Yes, but money issued by governments is also doomed to failure, with a failure rate modestly higher than the failure rate of governments.

</comment><comment><USER84> I wonder if he would change his mind if it turned out the NSA developed bitcoin.

</comment><comment><USER85> Another prediction: In the future, after bitcoin is abandoned, a world-wide organization will be set up to introduce a cryptocurrency that does not not involve mining, which allows inflation.

</comment><comment><USER86> At dot-com time, everybody said "this is a new economy, old rules don't apply". Same in this thread "Bitcoin is a new technology, old rules don't apply" ...

<comment><USER87> Not at all. Bitcoin's value will continue to increase while the new technology is adopted using the old rule of supply and demand. Then it'll stabilise. No new rules are needed.

</comment></comment><comment><USER88> The author is mostly the blind pig bumping into aspects of bitcoin without seeing them for what they are. But in the end he stumbles across the proverbial truffle: _" Bitcoin appeals because governments are not fully living up to the responsibility that comes with state-sponsored money. Bitcoin, or something like it, will thrive until the authorities do better."_

And when, in the time of QE, does he expect that it will come to pass that _" authorities do better?"_

</comment><comment><USER89> I like the idea of the Dollar as "left[-wing] money", that tickled me.

However, the author rather fails to explain his reasoning about the social entanglement of money, referring us instead to a book which is £10.34 in paperback or £9.31 on Kindle[1] (a rather uneconomic proposition, if you ask me.)

[1] [http://www.amazon.co.uk/Debt-The-First-000-Years- ebook/dp/B0...](http://www.amazon.co.uk/Debt-The-First-000-Years- ebook/dp/B00513DGIO)

</comment><comment><USER90> It probably will, _but that doesn 't matter_

Other crypto-currencies already exist and there will only be more. Paul Graham was right when he pointed out that "hackers love it"—that key point means people are going to continue to evolve the general idea. If deflation proves to always be a serious problem, I'm sure hackers will build in something to solve that. Anonymity is a problem, so Zerocoin is tackling that. And Litecoin tackles other problems.

</comment><comment><USER91> Like a startup, Bitcoin failing is the expected default. I think it will fail, too. What makes it notable is that it's also got unusually high chances of succeeding.

</comment><comment><USER92> Right vs left. Somehow its all politics and its not on his side and therefore doomed to fail. Maybe its neither and the other is an ideologue and imbecile.

</comment><comment><USER93> Just as there are lobbyists in Washing DC, and think-tanks that survey popular opinion to sway the people in a certain direction (e.g. why do you think the rich are getting richer; see Koch brothers), there are those who rely and profit from tax revenue who do not wish to see the Bitcoin experiment succeed. Just as Bitcoiners lobby for bitcoin, others will lobby against it.

I'm not Rothbard and I can't prove to you that we will be better off with an unregulated decentralized currency. But I do want to see the experiment through, for the alternative is worst from a point of view of my morality -- certain members in government shutting down the Bitcoin experiment by decree, because it is inconvenient for them.

They will cite history and circumstances to justify their centralized control of a currency and the need for income taxes, but I also know alternative lines of reasoning that negate them. What I do know for sure is that control over currency gives near-absolute power to those who handle the levers, and I would imagine that such power is not something you simply abdicate.

There are aspects of the economy that does require a policing authority, in such areas as environmental sustainability to prevent a tragedy of the commons. A growing income disparity between the wealthy <1% and the impoverished majority is also another tragedy of the commons, but perhaps the current way of dealing with these issues aren't actually helping. I suspect that a better way to deal with these issues is more competition amongst alternative economic forces, and for that we need a diaspora of currencies; currency and economy is what helps people converge upon a stable state solution in a distributed fashion. It's a heck of a tool, and we'd be damned if we don't explore its uses.

I'm not sure what the future holds for us in terms of governance structures. Bitcoin shows us that not everything need be "privatized" as the old libertarians had predicted. I think we're just now entering the beginning of the end for government as we know it. It's going to be exciting, wrought with pain, and probably unfathomably rewarding.

All that I ask is that any time you encounter an argument that assumes that taxes must be paid to fund a centralized government that controls the issuance of currency (for the good of the people), think twice before nodding your head. Our technology is new and we don't yet know what is possible.

</comment><comment><USER94> There is so much inaccuracy and fuzziness in the first paragraph that the author seems to ignore more than he knows about the subject. State and government are not the same thing, money and currency neither, bitcoin is not a privately issued and is not web based.

With such a sensationalist title, I'm not surprised this article is much balooney but I wonder how it got to HN frontpage in the first place.

</comment><comment><USER95> In so many of these BTC articles the authors spend the first few paragraphs explaining bitcoin to readers who don't know what it is. They often get a lot of the basic facts about the currency wrong (ex: anonymity of bitcoin in this article). Its honestly hard to take any of this seriously if these authors can't demonstrate that they actually understand the currency.

</comment><comment><USER96> > truly private money is an inferior alternative to the money that comes with > the backing of a political authority.

By the Gresham's law [1] (i.e.: "Bad money drives out good") being an "inferior money" is actually a good thing.

[1] [http://en.wikipedia.org/wiki/Gresham%27s_law](http://en.wikipedia.org/wiki/Gresham%27s_law)

</comment><comment><USER97> So basically what the writer is saying is that bitcoin will fail, because "bitcoin developers are trying to privatize money". The writer is either really incompetent or jumping in the bitcoin hype train with controversial articles to get cheap traffic. Adding comment so it get's penalized, since as I understand comments here work like downvotes.

</comment><comment><USER98> Disclaimer right up front: I personally doubt that Bitcoin will be a long-term success. I fall into the camp of people who believe it is not a mature enough technology, unproven despite the hype. It is much too volatile to be any good other than as a risky investment, though if you time it right, you could stand to make a fair profit at the moment.

What I do think is very interesting about Bitcoin is that it is a harbinger of things to come. It won't replace greenbacks anytime soon, but I think it's an indicator of where the world is heading.

I believe the global and historical trends we are seeing right now is away from traditional authorities acting as monoliths, in favor of empowered individuals. We are most likely at the very beginning of the trend - I doubt anyone reading this board in 2013 will be alive to see the transformation completed. But we will be alive to see some very interesting changes. Generally speaking, all centralized authorities, be they monetary, political, technological, etc. are fracturing in favor of empowered individual actors. That poses challenges as well as opportunities.

For example: consider a technology like Square coupled with a store of value such as Bitcoin. (In this example, the terms "Square" and "Bitcoin" are just placeholder values for mechanisms and tools). Oversimplifying greatly, if we take these technologies to their logical extreme, we have the tools for an individual to completely bypass banks and traditional governments. You have some goods that I want, I have some Bitcoins, we do a point-to-point transfer; you get the money, I get the donut, end of transaction. Truly savvy users in this system will have their own way of transmitting the money from themselves to the merchant. I'll choose to trust someone like Square to do it safely and securely for a nominal fee.

Whether or not you agree with the mechanics of how this happens isn't really the point. The point is to show that we are heading towards a future where two individuals can transact freely without a middleman "getting in the way." For the purposes of this discussion, "getting in the way" means limiting the freedoms of those individuals to transact as they please.

Of course, there are problems with this. If there are no rules, inevitably someone will game the system or take advantage of someone else. That'll be unpopular, and so people will seek to band together to transact in a network of trust. The idea of a network of trust is important today, it's value will only increase over time. I can't remember the exact term, but I read a wonderful book some years ago called "Anarchy, State and Utopia" which dealt with the philosophy around these types of issues (it's a pretty academic book, but here's a link in you'd like to see - [http://amzn.to/18883MU](http://amzn.to/18883MU) \- and yes, that's a kickback link).

Boiling it down, the main argument I took away from that book was that, even in a world where there are no "governments" as we're used to thinking about them, we'll never achieve true 100% freedom because there'll always be those who are stronger who take advantage of those weaker than themselves. For this reason, people join together and form mini-states. Within those mini-states and associations, rules will exist that people choose to live by, limiting individual freedom to provide security.

I think people are right to be excited about Bitcoin, but I'd be cautious about heralding any brave new world within the next 25 to 50 years.

<comment><USER99> These mini-states sound fun, I bet many more people would understand why they're paying taxes when it's not called "taxes", but instead giving directly to the person that needs help... Especially since you at least vaguely recognize that person because he's one of the 150-200 or so members of your mini-state.

</comment></comment><comment><USER100> Bitcoin won't fail because the criminal underground have accepted it. It is the perfect way to pay for drugs or other illegal activities. No way to stop, no way to trace. They reduce the risk of acting out their criminal affairs. They no longer need to move money across boarders, thus basically halving the risk of smuggling things.

Power to the people, right?

<comment><USER6> Criminals are still going to need to convert their BTC to currency in order to do most of the stuff they want to do with it. Enforcement agencies will just have to keep track of large transactions where people are cashing out their coins.

</comment></comment><comment><USER101> about a year ago i wrote a paper on bitcoin for a university course entitled "what is money?". my basic thesis regarding the future of btc is the following: as bitcoin takes over the regulation of the money supply, nation states and their central banks lose much of their agency in respect to economic and fiscal policy. it is thus in the best interest of nation states to restrict the use of bitcoin such that bitcoin will not take over to become more important than national currencies.

since i wrote this bitcoins value has soared, but i still hold that opinion. national governments might tolerate bitcoin as a sandbox playground for now, but once it gets widely adopted and threatens national currencies, they can choose between giving up vast economic and fiscal powers or restricting bitcoin. i see no reason why they should choose the former.

did i convince you? want to get rid of your bitcoins? send me some: 17Dk1cugCynTaNdmQihF7tproJgyKyWiwr :-)

</comment><comment><USER29> One migh expect better researched article from someone who has a degree in also mathematics: [https://sites.google.com/site/edwardhadas/biography](https://sites.google.com/site/edwardhadas/biography)

I guess he focused more on philosophy (unfounded ramblings) and journalism in his life.

</comment><comment><USER102> A while back I read about half of Graeber's book. He does argue strongly that money arises from debt, not barter. He does _not_ argue that it must come from the government, and in fact gives numerous examples of money arising organically from private debt relationships. That's a major point of his book.

</comment><comment><USER87> This article rephrased: "Bitcoin doesn't fit with my limited world view so I reject it wholeheartedly".

</comment><comment><USER103> "and it could easily become valueless if users lose faith." About as easily as religion losing its grip if believers lost faith... This can happen, but not "easily". "An object at rest stays at rest and an object in motion stays in motion", is what I'd like to think about this.

</comment><comment><USER104> Bitcoin very well could fail...I think Bitcoin's major threat is a better cryptocurrency that could replace it.

</comment><comment><USER105> Just out of curiosity: Has anyone throughly debunked the deflation argument against Bitcoin? Even the Bitcoin wiki seems fairly uncertain that deflation will not be a problem with Bitcoin.

I still struggle with how a fixed money supply vs. a steadily growing economy does not lead to deflation, and (eventually) hoarding.

<comment><USER106> Quite to the contrary: I am fairly convinced deflation and currency speculation will be the end of Bitcoin, because there is no central authority which can stop it from happening.

<comment> UK-AL There needs to be a feedback loop in cyptocurrencies. They look at the value of the coins on a exchange, the adjusts the amount of money generated to keep inflation at a constant 1% or 2% or whatever.

<comment><USER105> This would actually make sense, and it's what some economists have proposed instead of the Federal Reserve: an algorithm that targets a set inflation rate or NGDP growth level.

</comment></comment></comment></comment><comment><USER107> Anyway, Bitcoin could be a new way to "print" more money. I'm lack of knowledge of it. But it must be interesting to know where the Bitcoin shown in one's balance sheet. Asset? Or just another kind of fiat money? Either way, Bitcoin provides more money on market. Hmmmmm

</comment><comment><USER108> Bitcoin is the Altavista to the Google.

</comment><comment><USER109> C'mon people! Let's give these guys a break. They had a vision for something great and they tried their best to make it happen. Not every business succeeds, in fact almost many fail. They had the guts, the vision and the nerve to be great.

</comment><comment><USER110> There is only one legitimate threat to Bitcoin that I can see - a world government. I don't believe we have a world government now, but the conspiracy theorist inside me warns otherwise.

<comment><USER111> We aren't _that_ far off. Not in terms of the Star Trek conceptual world government ideology, but more the hidden organisations that are sponsored by corporations, such as those behind the Trans-Pacific Partnership (TPP).

If _they_ believe that Bitcoin places a threat upon their positions of power, then Bitcoin will be crushed and if they can't crush it, they'll make it illegal. Or they'll do it the German way, and they'll allow it, but tax it to fuck.

</comment></comment><comment><USER112> Bitcoin's been "failing" since I started buying Bitcoins in 2009. What's new? It's a very impressive functioning and thriving failed technology I must add.

</comment><comment><USER113> I said this back when bitcoin was $6 a pop. My face is well and truely egged up and my bank account is thin around the hairline

</comment><comment><USER114> How will bitcoin survive when all coins are mined, and it starts costing real money to perform transactions?

</comment><comment><USER115> tl;dr It will fail because it will fail.

</comment><comment><USER116> < They will fail, because money that is not issued by governments is always doomed to failure.

Like what? Gold?

</comment><comment><USER117> When the NYT runs an article like this, you know it's time to go long bitcoin.

</comment><comment><USER118> Is Hadas going to be disappoint when Bitcoin touches 10k :P

</comment><comment><USER119> doomed to fail?

only if there's no demand. And I think there's a floor on how low demand can go that comes from the black market.

So I don't think its doomed to fail.

</comment><comment><USER120> The problem is its current value. Its a bubble.

</comment><comment><USER121> This isn't a prediction. Unless you think Bitcoin will reverse entropy then of course it's going to fail. _When_ is it going to fail?

</comment><comment><USER122> Linkbait

</comment><comment><USER123> BitCoin has one egregious and obvious flaw. There is absolutely no defense against the creation of a competing but otherwise identical cryptocurrency-- say, ZitCoin.

If I create my own dollar and claim it is backed by the U.S. Government, I am breaking the law. Until a few decades ago, it was physically impossible to create new gold (and now it is still prohibitively expensive-- and radioactive).

There is nothing that stops someone from generating a new currency (ZitCoin) with the same desirable properties, but without the obvious favoritism toward early adopters. If one more can do it, then many can do it. I don't see why this won't eventually drive the value of fixed-pool cryptocurrencies to (or near) zero.

<comment><USER124> There's already LiteCoin and others which don't seem to undermine BitCoin. You might need to reevaluate your position.</comment></comment>


Ask HN: When to give up on a (non-performing) partner/co-founder? - <AUTHOR>

I initially started work with another person on a SaaS hosting company. This person moved to my town to work with me for 4 months, before leaving out of the country.
When they left out of the country, they hadn't contributed anything to the production version of our site, except a minimal site design, which was completed in the first month.
There was minor things checked into Github, but nothing that would represent a 50% share of the company that we had set out to build.
My question is when? When do you give up on them? When do you cut your losses, and walk away from something you believed in? <comment><USER2> Do you have legal paperwork defining the 50/50 split?

More importantly, if he isn't pulling his weight, you need to have a "come to Jesus" meeting, where expectations are set. Make clear that you want to continue with the business, and that if he doesn't perform, you would like to split off and work on your own, and are willing to give him a 10% equity stake to walk away. Barring that, you are going to walk away yourself and start from scratch with a new partner (this time you will maintain control, and use an earn-in structure for future partners).

</comment><comment><USER3> I think it's better to drop them if they're holding you from getting to your target. The best example is how Mark Zuck, Dropped Savrin when he was not letting mark to get funds from VCS

<comment><AUTHOR> How do I accomplish that when they're a 50% partner? I'd really like not to go the legal route, but it seems this is the only actually viable option.

<comment><USER2> Have you set expectations yet? I think you need to first discuss why he isn't pulling his weight, and tell your partner that if things don't change, then you are going to have to figure out how to continue the business without him. First tell him what you expect, and if he doesn't agree and you can't come to a compromise, then give an ultimatum.

At this point, it probably doesn't make sense to get in a legal fight. I think worst case scenario is you break off and continue on your own, and jettison the minimal contribution your partner has made to the project. It doesn't sound like the business is at the point where he is going to lawyer up and sue you. It would cost you both more than its worth at this stage.</comment></comment></comment>