What’s Bitcoin worth?
At this moment on September 27, 2015, it’s worth $3,786.50.
Yet, Wall Street Journal writer James Mackintosh says Bitcoin’s Wild Ride Shows The Truth: It Is Probably Worth Zero.
Behind every bubble is a good idea bursting to get out, and bitcoin kind of looks like a good idea, at least if you squint a bit. A digital currency without borders that governments can’t control and that allows secret online transactions? I’m in. Bitcoin itself? Not so much.
So is a single bitcoin worth $500,000, $5,000, $500 or $0? I’m inclined to say $0, especially if bitcoin’s value depends on it being adopted as a global digital currency to replace dollars. There is no chance whatsoever that bitcoin can displace the dollar, for the simple reason that it is badly designed. Bitcoin can handle a pathetically small number of transactions, and uses an inordinate amount of electricity to do so, making it entirely unsuitable to replace ordinary money.
Even if bitcoin worked better, it is in a Catch-22 because of Gresham’s law, the nostrum that bad money drives out good. Given the choice of spending inflationary government-issued money or something which holds its value, everyone would spend the bad paper stuff and hoard the bitcoin. You wouldn’t want to be the person who spent 10,000 bitcoins on two pizzas in 2010, when a bitcoin was worth a fraction of a cent. Those bitcoins are now worth $40 million. But if no one spends bitcoin, it will never get established as a currency.
Let us unpack the idea of bitcoin being based on illegal transactions. Dan Davies, a bank analyst at Frontline Analysts in London, came up with a value thanks to bitcoin’s built-in limit of 21 million in circulation.
In any currency, the money supply multiplied by how often it circulates equals the price level times the number of transactions. For bitcoin we can estimate three of the four variables, Mr. Davies says. He observed that even criminals don’t set prices in bitcoin, but rather in dollars, and then immediately convert. Assume that all drug dealing moves online, that bitcoins circulate as rapidly as ordinary currencies and estimate a $120 billion-a-year market for illegal drugs, and the formula spits out an ultimate value of $571 for a single bitcoin. The more drugs traded, the higher the value, and the more bitcoin hoarded rather than spent, the higher the value.
Drug dealers might be willing to put up with the limitations of bitcoin, notably the uncertain time taken to complete a purchase and the high transaction costs. Laundering dollars is more expensive.
But studies cited by the United Nations Office on Drugs and Crime suggest that cryptocurrency-based online drug dealing remains relatively small, and focused on retail, meaning fewer and smaller transactions than Mr. Davies’s limiting assumption, so justifying a much lower bitcoin price.
Gold is hopeless if you want to pay the mortgage or buy bread, but is useful insurance because we can be confident that if a government currency collapses the shiny metal will roughly hold its value.
It helps that history holds plenty of examples of currencies losing all their value to hyperinflation while gold could still be bartered for food and shelter.
Gold has a value far above what is justified by its uses in electronics and jewelry only because (almost) everyone agrees that it has value. That “network effect” is what bitcoin needs to establish itself, and the more attention it garners, the more likely it is to become established. Yet gold has had thousands of years and a history of being used to back money to support its position.
If we assume that bitcoin will either succeed completely in displacing gold or fail and be worth zero, it helps explain why the digital token has been so incredibly volatile, with a 40% loss in two weeks, and a 33% rebound since Friday’s low. Based on the simple choice between total success and failure, we can very roughly say that bitcoin at 70% of the gold ETF-derived price suggests a 70% chance of displacing so-called paper gold as society’s chosen emergency store of value, and a 6% chance of displacing physical gold.
Even digital dreamers should accept that is far too high.
Bitcoin is Not the Next Gold
For the record, here is my comment earlier today.
Bitcoin vs Gold
Heart vs Head
I sympathize with those who so much hate fiat currencies they are willing to latch onto anything that might displace them.
However, let’s not confuse our heads with our hearts. Bitcoin is backed by nothing. Copycat ideas are a dime a dozen. There are over 400 competing digital currencies.
Governments may or may not embrace gold again. Governments may embrace digital currencies, but it is certain Bitcoin will not be the one.
Bitcoin could plunge to $100 or rise to $10,000. Neither would surprise me.
For further discussion, please consider Bitcoin Silliness, Myths, and Fatal Flaws.
Mike “Mish” Shedlock
Bitcoin, the tulip of the digital age.
j c said:
Were the Dutch of old involved in drug dealing and money laundering?
David Fox said:
The Dutch traded coffee and chocolate.
Medex Man said:
Yep, the digital tulip mania. And, the tech details:
Digital ‘Currencies’ Are ALL A Scam
by Karl Denninger
However, they are fantastic for the person who STARTS a cryptocurrency and can mine them incredibly easily. I suspect that why it is still not known who started bitcoin. We do know a co-founder of Ethereum – Vitalik Buterin, a Russian-Canadian programmer and a co-founder of Bitcoin Magazine. He knew a great thing when he saw it… a digital pyramid scheme.
Unlike Bitcoin, Ethereum is actually useful. It can run code.
Bone Fish said:
People who bought Bitcoin several years ago are happy they did today. Why are so many who didn’t wasting enormous amounts of time and energy talking about it?
If someone got in early on what is effectively a pyramid scheme as described in great detail at the link I provided, good for them. I could have mined a whole bunch of them with great ease because I knew of bitcoins EXTREMELY early in their history and now regret that I didn’t.
There’s a guy who replaced a hard drive from a low end laptop and threw the old one away which contained the info for his wallet of bitcoins which he very easily mined as a background process early in the game that is now worth many millions and he regrets that, too.
HOWEVER, for anyone who isn’t MINING them (which is a FAR less profitable game than it was in the early days mainly due to just the cost of the electricity required, not only the hardware costs) and is instead BUYING them, you’re in a very dangerous game. That same sort of warning might have been appreciated by those involved in the tulip bulb mania, too.
Also, I’m not too fond of having a large cache of virtual money stolen via a few mouse clicks from the dark web with no fraud insurance against that. If you have a large number of them and that somehow becomes known, or maybe even if it doesn’t, expect a keystroke logger to pay you a visit. If I had mined a large cache of them long ago, I would have definitely converted all of them over time to real, physical assets.
Bone Fish said:
Any profitable trade is a good trade.
Until it isn’t… as in tulip manias and other massive mania-related bubbles of fundamentally valueless things… like bitcoin.
Macro Investor said:
There’s a big difference between good trades and blind luck. People have made and lost money on bitcoin. Neither were doing more than gambling on the lotto.
Actually, there was a point in time where bitcoin was an excellent trade.
When it was near $100 – Bernanke said he wanted to study it.
In retrospect, it should have been clear that any national shutdown was not imminent.
It’s a fascinating study of mania – best since beanie babies.
At one point Beanie Babies accounted for 10% of EBay activity – can you imagine…? It’s always about greed.
Root Hog Or Die said:
Mish, I totally agree w you about Bitcoin! Also, lets not forget that the fiat currencies of today are actually backed with something more than a worthless gov promise. Some 90% of the float is backed by debt. Might be a lot of crap debt, but still debt it is. And someones debt is someones else’s asset. But of course, you are creditor and cash owner at the mercy of the politicians and bankers.
Federal Reserve to Launch Its Own E-currency: Fedcoin
EconomicPolicyJournal.com | September 23, 2017 | Robert Wenzel
The U.S. Federal Reserve will not only issue its own cryptocurrency but will also make sure Americans use it, according to Doug Casey.
“To start with, I suspect it’s going to be a parallel currency. Perhaps usable just within the U.S. which, in effect, would be a form of foreign exchange controls even more effective than the inability of Americans to open up foreign bank and brokerage accounts today [due to monetary control through FATCA]…I think it’s a near certainty that they’re going to do something like this and soon.”
They will call it Fedcoin.
David Andolfatto, vice president at the St. Louis Fed, proposed the word “Fedcoin” in 2015. He’s spoken publicly about this multiple times since then, and says Fedcoin could give the central bank an “added (policy) tool.”
I speculate that the “added policy tool” might arise from Fedcoins either deleting or replicating themselves overnight according to the Federal Reserve’s wish to contract or expand the money supply. Scary! 🙂
F Vevaina said:
FedCoin or whatever it ultimately gets to be known by makes the most sense.
1. How can Bitcoin or any other crypto survive when in fact it goes against banker interests?
2. How can Governments collect taxes if cryptos are a decentralized form of currency?
3. Cryptos are currently being tolerated by Bankers because it is currently taking away the shine from Gold and preserving the US dollar value at a time when there is massive de-dollarization taking place. Once the Fed and other central bankers figure out a way to control cryptos effectively and ban its use, the exchanges will be shut down and Bitcoin and other forms will reach a zero valuation. This does not seem to be very far off.
Don’t underestimate the banksters and write them off.
j c said:
brilliant idea, escript.
Collect taxes in dollars pay US bills in fedcoin starting with soc sec, tax refunds, a smoke and mirror devaluation of US debt and future obligations without humiliation of formal dollar devaluation.
Stuki Moi said:
1. Eventually bankers run out of other people’s money to steal. Or people wise up to the fact that bankers produce nothing of value, and can be dispatched of like Tutsis, with exactly zero negative effect on anyone productive. It may take a while, but eventually all societies built entirely on theft propagated by pure leeches, will go Venezuela. Unless they wise up, and go Somalia first.
2. Tax land. Government exists, at their most fundamental, to help you uphold the claim to exclusive use of a piece of land. In order to avoid everyone fighting everyone else over every piece of dirt forever. Since that is the service government provides, that is what they should charge for. Simple, equitable, and requires no Stasi grade spy apparatus to make sure some teenager isn’t under reporting to the Politburo how many glasses of lemonade she sold last hour. Want help protecting your land claim? Pay for it. Don’t pay? Good luck organizing your own defense… No spying, harassing nor robbing required.
3. The half literates at the Fed and on Wall Street “figuring out” a way to break cryptographic math, is rather far fetched…..
Crypto currencies need some place on earth, or in space, where they can be converted back and forth to real goods. And they need anonymity.
Absent the progressive yahoos pining for a One World progressive police state, somehow managing to achieve the impossible; the former will come to fruition somewhere. And once you can buy useful stuff anywhere with an anonymous crypto, demand for crypto will exist. And the place that doesn’t meddle, will gain a huge competitive advantage over other places. So turning a blind eye to crypto acceptance, will prove contagious.
With anonymity, and a place to convert coin to real goods; one of the biggest beneficiary rackets, will be the bribe and corruption ones. Fat chance the slilmeballs who publicly popund their fists against “terrorist funding,” “drug dealing” crypto currencies, will say no to millions upon millions in entirely untraceable funds being transferred their way in exchange for Federal contracts to supply the War Against Crypto…..
No matter how much some pliant bankster apologist, spins his silly little head around worrying about whether yet one more thing he knows nothing about, will “go up” or “go down,” a truly anonymous means of transferring and accumulating purchasing power is too useful at the individual level, for it not to be utilized. Noone wants to be spied on and robbed. And the only way to avoid that fate, is to keep your stuff hidden, so that noone is aware what you do, and whether or not you have anything worth attempting to rob.
This is true and it can’t be scaled up by adding more computers.
Brian in Chicago said:
I’m not a tech expert, but I would imagine that the code could be update to run off of Proof of Stake instead of Proof of Work (or go hybrid,) which would greatly reduce the amount of energy required to run the network.
A crypto backed by gold, potentially the best of both worlds. Bitgold etc has merit as it can have the benefits of digital ownership transfer with a tangible asset backing.
Long story short, Hive on TSX is interesting as electricity costs not excessive in Iceland.
I ploughed through many, many co’s on Venture Radar and elsewhere to get a feel for crypto and blockchain start-ups. 99% not worth spending more than 3 minutes on.
It is real wild-west. Blockchain will be massive, I can see the usage cases, need, utility, but it is an enabler to existing business and not an end in itself. Massively disruptive.
Look for picks and shovel suppliers in GPU, rentable Data centers and such like.
Beneficiaries there but also in industries adopting to offer business process optimisation.
Picking winners is mostly a lottery currently. Banks will both win and lose.
I can only imagine a Gov coin for 2 real easons:
1) To help the banks if their income from transaction costs takes a massive hit over time. Somehow banks will be involved to take a cut.
2) To corral economic activity into a closed arena where Feds have total control to make policy more effective . They see everything and can manipulate to their hearts content to achieve some result. A Central Bank wet dream.
I really can’t imagine a Gov coin with limited issuance. If it starts limited somehow they will increase it (I don’t know how) as the temptation will be too great and they have zero discipline.
Blockchain is here to stay and massively disruptive/useful.
This is why Jim Rickards always mention that Precious Metals is the best and safest to invest: https://dailyreckoning.com/jim-rickards-bitcoin-gold/
However, Precious metals are not practical to safe keep.
Bitcoin can never supplant the dollar. First up it doesn’t have the legal framework that the constitution sets up for the national currency. The dollar didn’t exist before it was created by the constitution. So it is a legal construct of no intrinsic value. Bitcoin is not even that. The dollar was always a fiat currency even when backed by metal. The metal was valued to suit the currency, not the other way round hence effectively fiat. The national, federal, government has via Congress total control over the dollar. It can bankrupt it should it so desire, but otherwise the dollar is always there to buy whatever the government chooses to spend. Bitcoin can’t compete. It’s worthless, like confederate money.
I’m still trying to get my head around it all.
1) Anything is only worth what someone else is prepared to pay for it.
2) “Pay for it” is the question. Pay in $, Gold?
3) Why pay for it? What purpose does it really serve to be paid ANYTHING AT ALL FOR in any asset?
4) What part does value store play vs utility vs confidence trick? The technology is valuable but not a Bitcoin moat. Speculation is am element of the price.
Somewhere in all this there will be a some type of Microsoft, Amazon, Google of Blockchain. That is where the LASTING value will be.
Anyone know where?
Anyone can create currency. the getting it accepted is the issue and compared to the dollar that’s pretty remote.
Remove fiat but have a real world asset hidden in vaults that can have rapid digital ownership transfer.
The need to convert back to fiat for day-day expenditure is the achilles heel but for groups that have day-day fiat spend needs covered it’s very interesting.
An online bank account where you can still draw fiat from ATMs backed by a Bitgold type account that goes back and for as deposits are made or debits drawn.
“Anyone know where?”
A hypothetical not yet created company, called Tulipmania.
There is an intersting upstart with a very successful background.
It is called seabubbles, in France! And it’s product is designed rise to increas efficency.
There is video of the prototype on youtube.
Gold and silver are very expensive to actually physically mine and pull from the earth.
There is no way just make up a “new” gold or silver currency. Either there is gold in it or not.
They both have certain exceptional metallurgical properties that no other metal or element has.
The both have great industrial applications (silver much more so).
With either gold or silver in any form, I can go to the remotest village in Mongolia, India, Afghanistan, Zambia, etc and buy things with it.
They both can be made into beautiful jewelry and will help you get laid.
So um…yeah. It does have an intrinsic value just sitting in your hand.
And the thousands of crypto-currencies? Not so much.
I don’t get how bitcoin, or any of these digital ‘coins’ have been given the title ‘currencies’. They have none of the qualities which make a currency, let alone ‘money’.
They are more a transfer mechanism between contracting parties and in that regard they have some monetary characteristics.
When backed by gold it gets interesting.
Backed by fiat, it’s just a transfer mechanism with speculation on top imho.
It can’t be backed by gold, or anything else when it has none of the qualities of a short term bill, that once upon a time what have amortized in gold or silver.
And by short term bill I mean a ‘currency’.
Ownership of the asset associated with the Blockchain transaction is provable, transaction is traceable. Ownership transfer occurs.
Backing bitcoin by gold implies some sort of centralization AND trusting an external party with gold storage. You also need to add storage fees on top of transaction fees.
Maximus Minimus said:
Because it’s called coin. It is a money transfer mechanism. Maybe they will drive Western Union out of business.
Concurrently, it rides the central banking money debasing backlash.
Who will defend Bitcoin? If the Dollar drops, or the Pound, Euro, Aussie Dollar etc. etc. governments will defend them and seek to iron out fluctuations and, much more importantly, do their best to adjust economic policies to help even out the situation and thus reflect economic (market?) actualities. There is nobody to do that for Bitcoin et al. So it (they) are bound to fluctuate widely/wildly. I prefer to play the horses myself.
Bitcoin and other digital currencies harder to track could be very useful to some nation-states, which may want to evade financial sanctions and economic warfare. For example, digital currencies could be the equivalent of black market transactions (outside the USA dollar financial system) for North Korea. In other words, weapons of defense against economic warfare. Perhaps zero value for the average person, though, and certainly lacking gold’s long track record.
What bitcoin has really done, is highlight the intense global hunger for alternative, non-state currencies.
I’d be curious to know how easy it would be to buy (or sell) $1m Bitcoins.
Liquidity is fundamental to the success of any currency. Trading costs (based on volatility) also pretty key to it all.
swiping a credit or debit card in any country has been replacing cash globally – not bitcoin.
bitcoin is worth as much as the next guy is prepared to pay for it. at current levels, the bitcoin feature sustaining it, is its divisibility to thousandth or millionth or billionth of a bitcoin. bitcoin id infinitely divisible.
how much is a smiley face on snap chat worth? there is infinite supply, so it is worth nothing.
failed nation states like venezuela or zimbabwe that cannot get enough bolivars or import enough dollars might find BTC attractive, but really, how d they get BTC in the first place and are people prepared to pay 4,500 for a whole one or 45 bucks for a tenth of one? where do they get their foot on the rung from here? i suggest that BTC is now beyond the reach of ordinary folk to fool around with and its utility is zero.
other than that, the other 300 digital currencies out there have similar concepts and maybe the encyption in BTC is more valuable that others.
one good hack of BTC and its value will be revealed – not that billionaire the inventors of BTC will care since the pyramid/Madoff scheme has already succeeded without any prosecutions..
bitcoin is just a way to make transaction without state control
i bought a $30 scratch off lottery ticket and it said I won $500. so I took this piece of cardboard to the store and she gave me $500 in twenties. crazy to me that anyone would give the money for the ticket. but they did.
i think bitcoin is thin air gambling akin to the ticket I bought.
russell cohen said:
My $10 dollar bill states that it is legal tender for all debts private and public.
Is bitcoin also legal tender? NO
Is it in a country’s best interest to legalize bitcoin so that it competes with their own currency? NO
Is bitcoin the ultimate “currency” for the the drug trade,the black market and as a means to subvert a country’s capital controls.YES
Are bitcoins gains subject to taxation.YES
Are bitcoins transactions transparent.
According to bitcoins backers the answer is yes.BUT since bitcoins gains ARE subject to taxes and and all exchanges etc are required to issue 1099-b’s for any transactions ,which requires either a social security # or and EIN #,the true answer is NO.
Brian in Chicago said:
If the counter view keeps using the “tulip mania” analogy any more, you’re going to paint yourselves into a stereotype of being technological curmudgeons. While people rail on about how bitcoin (and the other altcoins ((and tokens?)) are just wild speculation, and tomorrows next small cap mining stock waiting to burst, more and more people are jumping on the train of adoption and exploring ways to utilize and leverage blockchain technology, and by extension, cryptocurrenies as a median of value. (I also fully agree with James Altucher that in 5-10 years, about 80-90% of all existing cryptos will cease to be in existence.)
The peer-to-peer economy continues to grow and the less centralized a tool or application is, the more likely it is to be adopted. Centralized-everything is dying out.
Disclaimer- I do personally own a few cryptocurrencies and tokens and am assuming massive risk. I don’t know where the future will turn, but I am 100% betting on human ingenuity (and the rising human consciousness) to better our world. On that I’m all in.
Brian in Chicago said:
Also, I don’t understand why it has to be Gold vs bitcoin/cryptos. Like silver, or artwork, or licensing or syndication rights, it can be a parallel median of value.
I have read through a number of tracts, posts, etc, about Bitcoin. The first question that comes to mind is how will it scale as current currency does now? The second question is why does its value tend to depend on an increase in demand as a collectible rather than its ability to store value and trade value? People assure me that if I were to buy a couple of Bitcoins I could trade all or part of their value for goods and services yet there are few sellers of goods and services who accept Bitcoins and the trend is that this situation will stay the same. Finally, if those who are speculating in the value of Bitcoin were to sell, what value would remain? Seems to me that they crypto-coins are more like a game of musical chairs, only at the end of the music most of the chairs will be gone. I do not see where Bitcoin is more than a game of chance.
One thing is CERTAIN….YOU will be screwed.
Bitcoin has got to be the biggest scam in history! Cryptography is not at secure at all. Making bitcoin a finite resource was not a good idea, and these silly miners are wasting tons of energy and expenses “creating” new bitcoins as a “reward” for confirming transactions. Bitcoin is also transparent and not anonymous like people thought they were so there’s really no good use for it to launder money or sell drugs in less you enjoy prison. US dollars are so much better! If the government needs to fund war or an unfunded liability of some sort they can just get the FED to make them more paper dollars! If bitcoin was the real currency, which is impossible due to the scaling issues, the government would have to avoid war because they wouldn’t have the money to pay for it.
On top of that who doesn’t trust banks? I love my bank and I pay my taxes, even though my tax dollars had to bail out my bank when the housing crisis came about I would have gladly voted to bail them out (but nobody asked for my vote though), it doesn’t matter that I lost my home, job, and my true love during this recession… all that matters is that the banks are ok because lets face it, they are too big to fail. Its not like they were knowingly committing fraud and that is very evident considering nobody went to jail. Then the FED saved all of us by lowering interest rates to practically zero, and printed trillions of dollars out of thin air to boost the economy. It worked! Thanks to the FED I have a job, a great apartment, and a dog who loves me!
These bitcoiners are getting on my nerves thinking they can get away with making their own decentralized currency that has no government control. Idiots. No government is going to stand by and let the people have the power over their own money! When will they learn? After they sink all their savings into bitcoin and it goes to zero? Or when the government throws them in jail after making bitcoin illegal? Haha, idiots… they cant even touch their bitcoin, all this paper in my pocket is backed by the FULL FAITH AND CREDIT OF THE UNITED STATES GOVERNMENT! Is there a reason why I should not have faith in this paper? So what it only costs roughly 9 cents to make a Federal Reserve note and they can literally make as much as they please, its backed by the government who has never lied to any of its people and only looks after every citizens’ best interest (not wall street or bankers). These crazy bitcoin people need to wake up and realize that we can no longer have control. We are just sheep being herded around with tracking devices in our pocket, purchases are being recorded every time we swipe our debit/ credit cards, and honestly life is better that way. Its much easier not to be in control… Long live the FED!
Oh and to the author who wrote this superb article it actually the 25th of September, not the 27th. Thanks for the words of wisdom, its clear you really know your stuff!
Maximus Minimus said:
You deserve an upvote for the effort, and superb sarcasm.
The bincoiners have been learning. They just did a coin split spinoff just like the stock market does. Now if you had owned one bit coin before a certain date you would own it and an other one where it’s block chain works faster.
That might have been part of the last bubblishus move.
It isn’t a ledger in the block chain it is a journal.
Tony Bennett said:
How do you conduct trade using bitcoin?
A relatively stable currency a must.
How much would it cost to hedge a forward contract using bitcoin?
Not sure exactly what bitcoin is … but one thing for sure … it isn’t stable.
Ambrose Bierce said:
Should Bitcoin go to zero it will achieve it’s purpose, which is to serve as a transactional currency with no intrinsic value. Money is only meant to get you from from one thing to another, to achieve a universal method of cross-valuing goods and services and importantly debt. This is why gold is not money, and its value resides in the notion that it is not money, valuing gold in fiat only destroys the intrinsic value. money never was and never will be a rational store of value.
I call paper currency and gold money.
Ambrose Bierce said:
To do that is to denigrate the value of gold. A gold standard would value cash in terms of gold.
Jon Sellers said:
So I am planning a little European vacation for next summer. Probably Spain and France, maybe Italy.
I will need to trade dollars for Euros, and it would be nice to have $5k worth of euros in a bank account when I get there. And not have to pay exorbitant exchange premiums offered by banks.
Would it make sense to buy BTCs for dollars and sell them for euros? I’d be concerned they’d drop by $1000 in value in the middle of the transaction…
FlyOver Couontry said:
Jon, I have traveled a fair bit in Europe and SE Asia and I just use my ATM debit card. My bank charges me a straight $5.00 transaction fee regardless of how much a pull out. Easy peasy
It would be ludicrous to buy Bitcoins hoping to trade them and spend them a year down the road. They could move huge in either direction.
If you want a guaranteed amount in Euros to spend, you need to hold euros.
Could do both. One called the safe account and the other is a speculative account. Hopefully it would be ludicrously positive for risking a small amount.
If one needs $5000 in Euros for the trip then one should have $5000 in euros for the trip.
If one wants to speculate on the side, fine.
I never said otherwise.
Maximus Minimus said:
For those who like detailed reading rather than headlines, I link to an article @ ActingMan Parabolic Coin. You might skip to the comment section and read a comment by VB:
Interesting reading Mish’s article and the comments, I cannot even find one positive comment about bitcoin!
Here are my reflections on what is needed to make informed comments about bitcoin that could help the public
– Good basic economic understanding (most of you probably qualify)
– Good knowledge in cryptography (sorry here we lost most of you) but you can at least start educating yourself, try for instance this free course free courses
– Good mathematics skills (discrete mathematics) and computer science knowledge will also help
– Read some basic Bitcoin litterature, here is an easy start for you
There you go, hope this helps everybody to make more informed comments about bitcoin.
Maximus Minimus said:
OK. The first link is a link to course schedule at Stanford.
The second is a link to an online book.
Looking at the crypto pages, let me summarize:
-It uses public key cryptography to generate a pair of private/public pair. The bitcoin length of the key is 256 bits. The currently used length of keys in public cryptography is 1024 or 2048 bits whether you use RSA or DSA. Bitcoin is weak on security.
-Even the private key cryptography uses 256 bits – just for a temporary session key.
-It also generates only 256 bit hashes, really?
-If you computer crashes and you have no backup, your coins are gone.
But that’s only the beauty of the computer science.
Here is the real problem that everybody understands. You buy bitcoins using money that you sweated for. The other way is to mine using your computer, generating zero useful value, and only wasting electrons. If you dug trenches all day, and got one bitcoin in return, that would be fair: real bitcoin for real, useful work. Until you can eat bitcoins.
Yes the bitcoin blockchain uses PGP encryption basically. That is correct. But a new PGP is hashed after every block (every 10 min or so). It would take all the worlds computing power combined 98 years to break 1 PGP encryption. Quantum computing is the only threat but we are a few years off from that technology.
So the math and security has been proven, people have been trying to hack bitcoin since its inception but they are unable to do so. Its very secure. If you can hack bitcoin I will give you all my assets. That’s how sure I am.
If your computer crashes you still have all your bitcoin or any other crypto for that matter, its still stored on the blockchain. All you need to do is remember your seed phrase or keep it somewhere safe (usually 12-24 random words) and then you can re-spawn your crypto wallet on any computer or smartphone. This can allow a person to literally walk across borders with billions of dollars in their crypto wallets without anything but 12 words memorized in their head. This is the evolution of $.
And mining is not very easy, you have to have expensive hardware (even an advanced PC cannot generate you a single bitcoin in a year mining non-stop) It takes roughly 1000$ to mine 1 bitcoin, and on top of that you have to have the intellect to install the hardware and run the software which is no easy feat.
Right now bitcoin is working on their scaling issues. So is Ethereum. Soon both networks will be able to handle more transactions per second than VISA.
Its fine that you think this is going no where. The government will try their hardest to stop it but the genie is out of the bottle, other cryptos will take bitcoins place if the gov can somehow shut bitcoin down without having to turn off all the power grids and the internet (if that happens we have bigger problems than money).
People thought that the internet wasn’t going to do anything either… and now look, everything is communicated and transacted on the internet including your limited knowledge of bitcoin and the technology behind it…
Maximus Minimus said:
I oblige and supply my positive comment about digital coinware.
Apparently, Ethereum is supposed to automate and advance digital document signatures. All hail to it.
Another positive: in light of US threats to exclude rogue governments (oh, wait..) from the Swift network, Ethereum can be adapted to be a replacement.
Does this mean the threatened “de-dollarisation” might happen sooner than we think?
If so, the US Govt suddenly find themselves with threat they weren’t anticipating.
Reblogged this on World4Justice : NOW! Lobby Forum..
I suspect bitcoin is a wonderful idea to suck in drug money and other ill gotten gains and then flush it. good bye black market wealth. nice way to make millions go away.another scam targeting other money sources
What is the WSJ worth?
“The primary uses for Bitcoin are capital flight and money laundering. How long can that equilibrium last?”
Capital flight is dynamic. And I would gess it will be a permanent economic and political Phenomena.
Equilibrium is a false doctrine or assumption in economics. Dynamics is evident in almost every thing econimc!.
The radical price fluxuations of bitcoin show dynmaics not equilibrium. Bubble action shows dynamics in the form of “positve feed back” until it pops and the positve feed back changes direction.*
*In this case the positve feedback is people bidding the price further in the direction it changing. Weather it is going up or going down. (Change is not equilibrium but dynamic.) Momentum trading is positve feedback.
FG RIDEAU said:
the main illegal role of crypto-currency is to hide assets from the govt (no tax), your wife (no divorce payment), your bank (cannot seize it if you default on your loans).
Its a much much bigger market than the drug market and it could justify a huge market cap…
When bitcoin becomes the de facto currency in dozens of countries, will Mish move the goalposts? Yep.
When bitcoin becomes the de facto currency in dozens of countries, will Mish move the goalposts? Yep.
I nominate that for the most ridiculous comment of the month.
For starters, I have no bitcoin goalposts. Others do, as I explicitly pointed out.
It appears you did not even read what I said.
Second, the idea that bitcoin will become the defacto currency in dozens of nations suggests you are high on something.
Is it drugs or something else?
I do not get how a cryptocurrency has “value”. But my biggest question is: Say I want to buy $20,000 of BitCoin. Who gets my Dollars and where do those dollars then go? If BitCoin is the “stuff”, then why does someone so readily take the dollars for it? Were I to suddenly have a “stack” of BitCoin land in my possession, I would “sell” it as fast as possible and buy physical gold, guns, ammunition – any number of things that hold real and TOUCHABLE/tangible value.
A previous holder of Bitcoin gets your dollars, you get Bitcoin
Someone is cashing out, and you are buying
Mish that argument that crypto is worth nothing makes no sense. Gold is worth nothing except that people choose to use it as a store of value. Money is simply a tool to facilitate trade. Whatever people choose to attach value to to make that tool work – it will work. From tally sticks to seashells. To fiat, to gold. It’s simply an agreement to use something as a tool.
I do not believe Bitcoin will fall to zero. Where it goes I do not know.
But Gold has thousands of years of history as money and value.
Using conventional wisdom, when talking heads say jump in, it is time to run away. When they warn you to stay away, jump in. Doesn’t anyone wonder why we are getting all this orchestrated negative press on bitcoins. Governments are petrified of the idea of crypto currencies. It is time for each person to think long and hard about what is happening with crypto currencies. We may be at the dawn of a new age or just down another dead end.