I had my normal Tuesday morning. I got the kids up, my son watched some Dora the Explorer while I took a shower and his big sister got herself dressed. I got dressed, got my son dressed after we reached our daily agreement that I am a silly Daddy as I was trying to wear his socks on my head instead of putting them on his feet, and then hurried both kids out the door and to the minivan. I dropped my son off at daycare, helped him wash his hands, and gave him a hug and a kiss. I parked my car at the local bus park and ride and walked my daughter to school. I gave her a kiss on her head as she started to run off to one of her friends, and then I headed to the convienence store.
Here, as I have for the past year on most Tuesdays, I bought a cup of coffee, a muffin and the local newspaper. I gave the clerk my $3.50 and left the pennies in the jar. And then I ran like hell to catch the early bus to get to work on time.
The only time in the past year my spending varied was when I decided I needed an extra large coffee. I have a very good idea of what I need to spend to buy my Tuesday morning treat.
If the store only took Bitcoin, I would have no idea what my coffee, muffin and newspaper would cost in terms of hours of labor performed. That is a problem for something that is attempting to be a form of money as money is a means of exchange, unit of account, and store of value. The means of exchange functionality and store of value functionality don’t work well with Bitcoin, yet Vox’s contrarians are optimists about Bitcoin:
The markets haven’t been kind to Bitcoin in 2014. The currency reached a high of nearly $1,000 in January before falling to around $350 this month, a plunge of more than 60 percent. It would be easy to write Bitcoin off as a fad whose novelty has worn off.
After all, dollars seem superior in almost every respect. They’re accepted everywhere, they’re convenient to use, and they have a stable value. Bitcoin is an inferior currency on all three counts…
Startups such Bitpay have already figured out how to make Bitcoin attractive to merchants as a way of accepting payments. Credit card networks charge merchants around 3 percent to process transactions. Bitpay charges 1 percent or less to accept Bitcoin payments on behalf of merchants. Bitpay merchants don’t have to worry about the headache of disputed payments known as “chargebacks.”
Of course, for Bitcoin to take off as an alternative to credit cards, consumers will have to start using them regularly. And that’s going to be a hard sell, especially if consumers are exposed to the risk of Bitcoin’s volatility
I can see an argument that the structure of an open financial transfer system is attractive, but as long as it is tied to a widely fluctuating psuedo currency, the downside risk of a currency drop is way too high for holders of hard currencies. Bitcoin’s volatility is a decent match for rubles or other hard to transfer currencies.
SP
And it’s not great that people can steal your bitcoins and there’s not a damn thing you can do about it.
Bill Arnold
Maybe bitcoins could be pegged to the dollar? Or to gold? :-)
MattF
@SP: And there’s the related problem of what to do about thieves, con artists, and other, um, non-utopians. If your life savings are in bitcoins, then it really is a jungle out there.
jl
@SP: Thanks for link. Another bitcoin exchange fails, huh?
The linked article did not answer a few questions. Like, the dollar-bitcoin exchange idea: it allows the merchant to avoid the risk of holding bitcoin, but what about the customer? Who is going to bear the risk of fluctuations in value of bitcoin? Those nasty big-daddy swells in the US Treasury, banks, and Fed who control the US currency help out in controlling fluctuations in currency. No one does that for bitcoin, ’cause its all ‘open’ with no one in control (‘you do not control ME!!’) Sure, the too big to fail banks steal your money, and the Fed is following suboptimal macro monetary policy, but those are separate issues that can be fixed.
And no regulations! Wheeee! So far that means no regulations regarding exchanges that convert bitcoins to fuddy-duddy 20th century currencies. Which is why so many have failed spectacularly. The exchange problem is going to have to be solved too, unless bitcoin folks can persuade everyone to live in a bitcoin world all the time or all purposes.
So, I am not optimistic about the future of bitcoin.
Tommy
I am pretty close to the target audience of Bitcoin. In fact I find the idea, concept, everything around it fascinating. And honestly, I am wishing Bitcoin luck. But I wouldn’t touch it with a ten-foot pole for the one simple reason you mentioned. To me it is almost like gambling, I never know what my “money” is worth at any given moment.
I make a good living and have a few dollars laying around. But I learned a long time ago that I’d rather have the money I have/earn, then gamble in the stock market in “crazy” ways or at a Blackjack table where I could maybe walk away with more, but far more likely I’d walk away with much less.
Like you said Richard, you know what your morning routine will cost. You don’t have to calculate it. Heck I just checked my bank balance to make sure a new client’s check cleared. I could look at the balance, do a little math in my head, and know almost exactly what I could do with that money.
Would I like to wake up tomorrow morning and there be more money without me doing anything? Sure, who wouldn’t. But if I checked my balance and there was less, and I didn’t spend any money, I’d freak the fuck out.
justawriter
Bitcoin was designed to appeal to the goldbugs with the idea that there would only be limited number of coins “minted” which would somehow make it impervious to inflation – ignoring the notion that anyone who cares to get the proper program can create their own digital currency. There were reasons the world abandoned the gold standard and believe it or not, the world economy has been much more stable ever since – although I think the new Congress is going to do its worst to test that hypothesis.
Calouste
In other words, if you use Bitcoin to pay for online purchases you’re a sucker just waiting for someone to take your money and not deliver a product.
different-church-lady
I could have sworn pyramid schemes were illegal…
jl
In addition to the fantasy that a stable currency can exist without some kind of central control to stabilize fluctuations, ensure timely settlements, and control liquidity risk, there is the problem of perfect eternal memory of bitcoin. That means the bitcoin chain gets longer and longer with every transaction. I don’t see how timely settlement is feasible with an ever increasing chain.
Those old 20th century currencies do not have perfect memory of every transaction, and in some dimensions are very forgetful. That helps control fluctuations in value.
I’m not sure, but the prefect memory of bitcoin seems to be involved with the libertarian fantasy that everyone pays his or her own way at all times with no exceptions, and a perfect store of value (I assume in some kind of equilibrium, since that ignores the historical reality of short run fluctuations in value that are unacceptable for a practical currency by several orders of magnitude).
Seems to me that there are several libertarian fantasies built into the architecture of bitcoin that will forever doom it as practical for anything if widely adopted.
Edit: for example, all modern private and public clearing houses designed to ensure timely settlement and control liquidity risk are very forgetful about individual transactions.
Goblue72
So a currency popular mainly with neckbeards has some problems?
Hoocoodanode?
hoodie
So it has a bright future in North Korea.
lol
Who could have expected a currency designed to appeal to cutthroat dog-eat-dog self-styled John Galts would be rife with fraud and theft?
jl
@justawriter: Thanks fore reminding me of the deflationary bias built into bitcoin, which is connected with its pyramid scheme features. I don’t think there is a hard limit on the number of bitcoin, but the system is designed so that the real resources required to mint each new coin must increase. But not sure. I studied up on it some time ago, but can’t remember all the gimmicks.
Tommy
@jl:
Exactly. The fluctuations of Bitcoin in a day, heck an hour many times have been such that if it happened on the stock market the SEC would stop all trading. It makes what happened on the stock market during the Great Depression looks like “child’s play.”
IMHO both the positive and the negative of Bitcoin is there is a limited number of them. As best people can understand a few hundred, or maybe thousand people hold many of them. Just like if I owned say 5% of the stock of a large public traded company. I start to flood the market by selling my shares, or buying up many more, the market would go crazy among others that owned a large number of shares.
The rest of the people, “Joe public” like you are me that only have say $50,000 in shares, can’t do much of anything.
lol
@jl:
IIRC, there is actually a hard limit to the amount of Bitcoin though they probably won’t reach it for a while.
One of the distinguishing features of Doge-coin is that it has a bit of inflation built in.
jl
@Tommy: Whatever happens, imputations can be made to rationalize it as all your fault and for the best anyway. Your bitcoin exchange goes bust?: well I guess it was not worth it to you to find a more reliable one, and your fault you needed an exchange to get some old dollars anyway. It’s a chumps game for small timers, but if you deserved to be big timer, you wold be. Problem solved, SATSQs, etc. That seems to be the reasoning.
jl
@lol: Thanks. I don’t remember some of the goofy details that well.
burnspbesq
As long as we’re pointing and laughing at idiots, there’s this:
washingtonpost.com/news/volokh-conspiracy/wp/2015/01/05/this-post-shamelessly-uses-frederick-county-…
ETA: just because he found this piece of low-hanging fruit doesn’t make Volokh less of an asshole.
MattF
@burnspbesq: Previous thread has this link to an editorial from the Frederick newspaper:
fredericknewspost.com/news/politics_and_government/kirby-delauter-kirby-delauter-kirby-delauter/arti…
The town of Frederick MD is in a red part of MD, but is apparently turning suburban-DC blue from the city core outwards. So, expect to see stuff like this happening.
CONGRATULATIONS!
I’m a poor gambler – unskilled and unlucky – at the best of times. Bitcoin is like a nightmare come to life from where I sit.
CONGRATULATIONS!
@burnspbesq: Wow.
He’s the most frustrating kind of asshole – a smart one who should know better but refuses to try.
Origuy
What does “hard to transfer” mean in this context? I was able to walk up to any ATM in Moscow and get rubles converted from the dollars in my American checking account. With no fee, either, unlike ATMs in the US.
drouse
Bitcoin’s problem is that it is neither fish nor fowl. It wants to be a hard currency like gold deriving it’s value through scarcity and being hard to produce. It also wants to be virtual which means no corporeal existence. In a nutshell, a contradiction in terms. A hard currency that can be made to go poof.
Hunter Gathers
I iz in ur base, stealing ur Bitcoinz.
Amir Khalid
@burnspbesq:
If Kirby Delauter hates having Kirby Delauter’s name mentioned in public so much, what is Kirby Delauter doing in politics in the first place? Shouldn’t Kirby Delauter find some more private use for Kirby Delauter’s time?
ETA: Hey, this is fun!
Tommy
@CONGRATULATIONS!: Yeah I can envision going to some site where I could gamble with Bitcoin. Cashing them all in, everything I own, and getting like $250,000 in chips. Going on a 72-hour coke-fueled gambling binge, winning millions. Both winning and walking away with the winnings for the FIRST time. Only to find as I cashed out for more Bitcoin, in said 72 hours Bitcoin had lost 80% of their value, so in fact I actually lost. That is the kind of luck I roll with :)!
Origuy
Perhaps Kirby Delauter of Frederick, MD should ask George Tierney of Greenville, SC how to get himself off the Internet.
NCSteve
The real Achilles of the Bitcoin concept is the proponents’ failure to develop a cogent explanation of why it is ordinary people should voluntarily accept an enormous amount of inconvenience and economic risk on a day to day basis in order to lower the risk that people who engage in illegal economic activity will get caught.
Bill Arnold
@Amir Khalid:
He’s already google-famous. Poor guy.
Tommy
@NCSteve: Yes. Most people I know might not like our “system.” But at the same time they like ease of use and are risk averse. And as Richard said, they do like knowing that the $20 in their pocket will buy yesterday what it bought today.
Baud
Whenever I get paid in dollars, it’s like the Man has his boot on my neck.
OzarkHillbilly
Richard? You are one lucky man. What I wouldn’t give to go back to those days so I could appreciate them properly. Just from the way you said that, I know you do appreciate them, …
Damn. now a memory brings tears to my eyes. Not a good one. I pray to whatever Dogs may be, that all your memories are as the above.
Bill Arnold
@drouse:
Well to be fair one can effectively poof gold too, though it’s a bit of work. Basically, un-mine it in a way that is very expense to re-mine. E.g. dissolve it in aqua regia, pour into deep water in an open ocean.
Curiously bitcoin has no analog for this. (AFIK; maybe it does?)
OzarkHillbilly
@OzarkHillbilly: Sorry… I got sentimental for a moment or 2.
Roger Moore
@jl:
There is. The system is set up to cap the absolute number of bitcoins at about 21 million. Each time somebody confirms the transaction chain- which is adjusted to happen about once every 10 minutes- they’re given bitcoins as a reward for the service. The number they’re rewarded with halves every four years, so the total number awarded will never exceed the predetermined limit. Since that’s the only way new bitcoins can be created, it’s also a cap on the total number.
burnspbesq
@Amir Khalid:
Yes, but is it as much fun as seeing Everton get stuck with a replay?
burnspbesq
@Origuy:
Or he could resign from office, move to, say, Luxembourg, and take advantage of the EU “right to be forgotten” laws. But I don’t think the people of Frederick County have done enough penance yet for electing this jackalope in the first place.
Roger Moore
@drouse:
But gold has the advantage that it can actually be used for real world functions, which gives it an actual utility value. Its price may be affected by goldbugs, but the real-world utility puts some kind of floor under the price. In contrast, bitcoins have no utility; their value depends entirely on people’s willingness to accept them as currency. That means their value can easily fall to zero if people lose faith in them.
OzarkHillbilly
@Roger Moore: Sorry. If I walk into the local convenience store with an ounce of gold, what can I buy with it? I know what you are trying to say, but it really doesn’t translate to the real world.
The Sheriff's A Ni-
@NCSteve: You think con men and grifters are looking to sell to ordinary people?
Bitcoin is snake oil for Randroids and edgy teens.
different-church-lady
@NCSteve:
Because DIGITAL FUTURISTIC!
Roger Moore
@OzarkHillbilly:
The point isn’t that you can buy stuff with gold directly but that there will continue to be a market for it even if the idiot goldbugs start fixating on a different commodity. People talk about it being valuable because it’s scarce, but that’s not really true. It’s valuable because it’s scarce and useful enough that people can justify paying a lot of money for it because of its utility. I can’t buy stuff in my local convenience store with a ton of steel, a barrel of oil, or a bushel of wheat, but those things- like gold- will maintain some value even if speculators stop messing with their prices. Bitcoins have no value except that people accept that they have value, so they’re essentially the ultimate fiat currency.
MomSense
@Amir Khalid:
When my youngest was in kindergarten he came home with an exciting story about a classmate who said sh!t at school. He had to tell me what happened and of course he didn’t want to say sh!t but his classmate said sh!t and his teacher told him not to say sh!t and by the time he finished the story he said sh!t at least 20 times.
MomSense
@OzarkHillbilly:
It goes by quickly and we make so many mistakes along the way. You brought a tear to my eye, too. You are one of the good guys, Ozark.
Baud
@Roger Moore:
Nothing has value but for what value people place on it. Take away all the people and everything loses its value.
different-church-lady
@Roger Moore:
I believe the concept of fiat currency rests not on raw belief or acceptance of said currency, but that a government declares that the currency is valid.
Calouste
@different-church-lady: Currencies are better when they are backed by lead and steel rather than gold.
PurpleGirl
@Amir Khalid:
ETA: Hey, this is fun!
LOL Thanks for a good laugh.
JoyfulA
So then I just saw this on Twitter: huffingtonpost.com/2014/08/08/joan-bramhall-dead_n_5663645.html?utm_hp_ref=crime&ir=Crime
$5 million in bitcoins stolen.
lou
There was a story in the NY Times this weekend about someone’s mother having her computer held in ransom by cyber thieves who wanted $5,000 to release it from the malware. Of course, they wanted it in bitcoins.
Barry
@Baud: “Whenever I get paid in dollars, it’s like the Man has his boot on my neck.”
And what’s worse is that even if you convert it to cash, and spend the bills, that eye on top of the pyramid still sees what you do.
ChrisH
@Bill Arnold: There is a bit of an analog to this for bitcoins. Bitcoins are stored in wallets that each have specific keys which are 256 bit hash numbers. To access your wallet you need to know the code, which is usually another 256 bit number, that turns into that hash number. If you lose that code (computer crashes, your backup copy is lost etc) it’s impossible to access your wallet and the bitcoins inside are effectively gone forever because they can’t be transferred anymore.
Someone could brute force the problem to figure out what your code is, but that’s one of those takes till the heat death of the universe kind of problems. People get their bitcoins stolen because they are crappy about securing their wallet codes.