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The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

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Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#161

Post by peteretep »

These points are weak - there are other weaknesses of BitCoin, but these aren't really them. Almost every issue he raises attacks BitCoin as a medium of exchange (which it doesn't need to be) rather than as a medium for storing value. Taking them one at a time:

> Severe Problem Number 1: Seeding Initial Wealth

He doesn't really explain why this 'problem' is a bad thing. There is a limited supply, and there needs to be a distribution system. While this one may not be perfect, it doesn't cause any systemic weakness in the system. Early adopters will do well, yes.

But the degree to which people mine or buy bitcoins now is the degree to which they think they'll be valuable in the future - bitcoins already have a price. People who have mined them will sell them to you. Nothing stops you purchasing bitcoins now if you believe the price will go up. This is how markets work. Hearing someone complain about it is like hearing someone complain that people who buy assets cheaply on the stockmarket will make a significant return.

> Severe Problem Number 2: Built in Deflation

A bad thing if you're trying to replace a country's currency system with it, and excellent thing if you see them as a store of value. This is the same as people complaining that any other asset deflates over time.

> Severe Problem Number 3: Lack of Convertibility

This is the closest point he has to being right. Lack of convertibility is a current problem, but economics should solve that. All you need in order to convert your bitcoins is a person who is willing to trade. To have an efficient market, you need an exchange. Here's the crux: bitcoins have a value as long as someone is willing to buy them off you.

His key point here seems to be that 'no one is completely invested in the long-term success of the system' - yes. This is also true of your MSFT shares. No-one is guaranteeing that they will be worth anything in the long run.

> Severe Problem Number 4: When Something Goes Wrong, It Will Die

Perhaps. I went for dinner with some Fx quants last night. One of them brought up this point, and then they all laughed and said "And that's when you invest heavily in it". All assets change their prices based on bad news - most recover again and people who doubled-down at that point make money.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#162

Post by ignifero »

paulgb wrote: post #139
ignifero wrote: post #93

Treating bitcoin as a currency is kind of wrong. It's a commodity with limited and predictable supply, like gold for example. You wouldn't call it a pyramid scheme, just like you wouldn't the gold market a pyramid scheme. His points against its use as currency are sound.

It's a commodity designed to only be useful as a unit of trade. How does this differ from a fiat currency?

By definition fiat currency relies on governent regulation (and an internet protocol cannot be considered representative government, unless you create a committee to oversee the protocol, in which case we're back where we started).

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#163

Post by nkassis »

achompas wrote: post #154
mcantelon wrote: post #149

Earlier quoted context omitted.

>The net transaction is $0 (an exchange of currency for T-bills of equal value), but the market now contains more paper money. Whatever the mechanism, fiat currencies are subject to inflation through the pressure of an ever-increasing money supply. >If people demand Bitcoins as a "tax haven" from the government, then Bitcoins aren't long for this world. It'll be interesting to see how the state tackles this. It'll be…

Whatever the mechanism, fiat currencies are subject to inflation through the pressure of an ever-increasing money supply. As they should be, given that populations increase. Anyway, even if Bitcoins go underground, they'd have to be priced such that they'd be cheaper than other money laundering channels. Due to their finite supply, though, money laundering through Bitcoins will get very expensive. So their utility re…

I think this is a very important thing that people don't understand. Static money supply in a world where as you point it out population increases means deflation. And increasing popluation is only one example of the need for inflation. We create wealth all the time, people in other countries are buying their first car etc... the more goods are purchases and sold the more money you need. At least that's what I understand from my couple Economics classes.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#164

Post by thorax »

achompas wrote: post #160
acslater00 wrote: post #148

Hi, I'm Adam, I wrote this answer on Quora. Against my better judgement, I'm going to wade in here and make a couple of clarifying points. 1 - Scam. I regret using the word "scam" in my answer, because I think it overshadows the broader point I was making about Bitcoin's severe structural design flaws. After watching the community react to this debate, I'm pretty confident that the average bitcoin supporter is not in…

Thanks for posting here and on Quora. As someone with an economics background, it's nice to hear a sane explanation based on fundamental theory. I'm just surprised people aren't considering Bitcoins from a supply-demand standpoint. Why purchase Bitcoins in the long run unless you're laundering money or hiding from the government?

> Why purchase Bitcoins in the long run unless you're laundering money or hiding from the government?

That's kind of odd to say-- couldn't you say the same thing about doing cash-only transactions?

There's also the hope that you can "hide" from corporations/bad-people and make transactions that don't require you to provide information that can be used for identity theft, marketing, etc. Just typing in a unique 1-time deposit number has a lot of appeal for stream-lining transactions and making people feel more comfortable performing electronic purchases. I'd love people to get addicted to that kind of high-privacy transaction and push more innovation for traditional currencies/startups to help with that.

In the modern world, every purchase of anything not bought at a yard sale is a privacy and identity concern-- I'm eager to see alternatives that find new ways to avoid that.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#166

Post by johno215 »

achompas wrote: post #129
mycroftiv wrote: post #13

The current design of Bitcoin is obviously not correct for the long term, and I am sure it will be supplanted by more evolved crypto-currency systems. There is absolutely nothing preventing people from taking the open-source code and creating an alternative "Bittoken" currency which changes problematic design elements such as the minting/issuance model. Given the rewards that have already accrued to Bitcoin early ado…

Looked at in another way, think of Bitcoin as something more like MMORPG loot. If people are willing to spend vast amounts of "real money" on items for their WoW character, spending that money on Bitcoins instead makes it seem like a sane investment rather than just flushing it away. What is the intrinsic value of Bitcoins, then? That people are willing to spend money on Bitcoins? As an investment vehicle these are t…

Modern (post gold standard) currencies have no intrinsic value either. Their only value is that people think they have value.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#167

Post by tptacek »

sbierwagen wrote: post #78
bad_user wrote: post #57

Earlier quoted context omitted.

Actually many cryptographic algorithms that got defeated, haven't been defeated with " new discoveries in mathematics ". Also, you can't really prove that such an algorithm is secure. You can only prove that it exhibits certain properties that make it more secure versus other algorithms. Judging by how cryptographic methods got defeated in the past, I think it's safe to assume that it's only a matter of time.

Also, you can't really prove that such an algorithm is secure. Incorrect. One Time Pad encryption is provably secure. (Proven by Claude Shannon, no less; as in, the guy who invented information theory.) It is impossible to decrypt if you do not have the key.

One time pads strain the definition of "encryption" and are by convention a bozo filter for people talking about crypto. For instance, downthread, you have someone saying that an all-zeroes OTP key would in theory be fine.

In reality, all OTPs do is shift forward in time a relationship that must still be secured through some other means.

So, from now on, when we talk about the feasibility of breaking crypto, let's implicitly constrain "crypto" to "crypto that people can use in practice".

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#168

Post by mchusma »

I think each of these arguments do not hold up. Most people have already discussed but I will summarize.

Severe Problem Number 1: Seeding Initial Wealth This problem is similar to Gold Miners or anyone initially to an asset class. You already retracted your scam comment, so thanks. Remember, governments are currently seeding banks and itself with wealth through inflation. Its a different set of winners based upon market forces.

Severe Problem Number 2: Built in Deflation

The money supply is actually inflating (slowly). People will make educated, market based choices about how to act with their money once the currency settles down. That will likely be assigning higher value over time to Bitcoin. The Euro or Dollar have the opposite, and many would argue much worse problem: you don't want to hold them because the issuing government slowly saps value through effectively built in inflation.

Severe Problem Number 3: Lack of Convertibility Try trading government currency in a collapse situation, you will encounter problems. Right now, Bitcoins are roughly as easy to convert as any other currency. Bitcoins are inheritly no more or less convertable except for the lack of current market makers (a good point you brought up).

Severe Problem Number 4: When Something Goes Wrong, It Will Die Look at Zimbabwe to see an example of governmental currency collapse. Any currency can die. People used seashells at one point, they died. I'm not sure Lyra or Franks are worth anything today.

Bottom line: Yes, Bitcoin can fail (so can any other currency). It is earlier than other currencies in its lifecycle, so has a different set of risks. Is there speculation going on right now, almost surely. Bitcoins appeal to people because it is not government based, electronic, and low cost. Many of the problems you note are just different problems than existing currency, for better or worse.

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#169

Post by weavejester »

achompas wrote: post #118
awt wrote: post #88

Earlier quoted context omitted.

Why is it inherently a bad idea? Why is it a pyramid scheme?

Because Bitcoins are being suggested as an alternative to fiat money. However, given their current rate of appreciation, Bitcoins are actually an investment , not a currency . What is their inherent value, then? Commodities (whether precious or industrial) can be used in production or for luxury goods. Equities generate profits, which are subsequently shared with investors. What do Bitcoins do? Nothing.

What do Bitcoins do? Nothing.

That's not true. Bitcoins can be securely transferred between accounts without the need for a centralized broker. That's not "nothing".

Re: The Quora post that killed Bitcoins. Please discuss if his arguments are valid.

#170

Post by tptacek »

foxhill wrote: post #119
rlpb wrote: post #111

Earlier quoted context omitted.

...subject to your key being safe, produced from a good source of entropy and never used anywhere else. Is this provable?

keeping the key safe, yes, using the key once, yes, but need not be random at all (with in reason - a key of 0s is feasible, under the pretense that the cipher text, which would be equal to the plain text, is the cipher text for any message with the same length, for some key) the key space being the same size as the message space, and cipher text space means that all messages of equal length are possible, with no way…

I leave the reason that this is among the funnier HN crypto comments ever as an exercise to the reader. And, of course it happened on a Bitcoin thread.
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