I'm sorry but this is silly. What you are suggesting has been already tried in prohibition of alcohol, in war on drugs and now in a more civilized way in a "war on car downloaders".
The main outcome was that black markets flourished. If people want what Bitcoin provides, they will get it in one way or another.
That's the key point. There is a huge demand for alcohol, for drugs, and for cheap/free content. In the first two cases, this means that there is real profit to be had in selling it, and the illegality means that prices can be hugely inflated due to risk. For free content - "car downloaders" is a really nice way to describe it - I haven't yet figured out the economic motives, but it seems to be a mixture of selling ads (for the people running the sites), sharing/giving back to the community (especially on private, invitation-only trackers), and just because of how easy it is.
Is it possible to make money or karma off of bitcoins in a similar way? Well, you can sell them. If you have bitcoins, you can make a profit of them that way - you can sell them for above value, or charge for the service as well as the coins. You can also buy them, hoping that the price increases, which ends up as selling them.
So, answer this: if bitcoins were made illegal, what monetary incentive would there be to use them? Their price certainly wouldn't go up - it would plummet as all the legitimate traders tried to get out.
Hate to burst your bubble but comparing demand for alcohol during prohibition and demand for quasi-anonymous online value transfers is what most folks would call an obvious strawman. What percentage of the population of the US do you think has even heard of bitcoin, much less understand the underlying concepts?
Everyone I know that's even aware of (much less involved with) bitcoin atm falls under the following demographic: young technophiles. A small minority of these are buying up more GPU's and giggling about the "free money" they're making.
It's a mistake to confuse speculation on the part of some early adopters with actual broad public demand. Expect popular demand for bitcoin about the time that credit cards stop working on Amazon.com.
In the mean time the IRS has every reason to stomp on this before it gets any bigger and all the excuses legislators need have been laid out on a silver platter.
Bitcoin is pseudo anonymous. Everyone knows about all the transactions - they are kept in the block chain that all the clients have, you can only try to hide the real identities of the persons involved in transactions, and that is still quite hard, and anonymity could be attacked using different techniques (see Tor anonymity problems)
It was a bit harder(more costly) before Bitcoin to send small sums "anonymously", but if you have millions or billions there is a whole industry of lawyers/accountants/bankers to help you out. So in that perspective Bitcoin brings anonymity to the common people, lowers the barriers to entry, or you can also say that it brings the era of financial democracy upon us :)
Tor type attacks won't work here. Why? Because transactions go to everyone. Bitcoin "addresses" are really key fingerprints -- it's impossible to know who has the key to decrypt a given Bitcoin. It's equivalent to sending everyone in the world an encrypted email; if you send it to everyone, how do you know who the intended recipient is?
On the other hand, once you receive bitcoins at an address, you have to reuse that address in order to finally spend them, which interrelates the transactions in a way that's visible to everyone. The only way to limit traffic analysis is to use and trust some service like the bitcoin laundry, which will accept coins from one address and send distinct coins to another address.
But the block chain remembers the current owning address of coins. You can't create a new address and use it to spend coins which you received at an old address, for the same reason I can't spend coins which belong to you. (You could transfer coins between your own addresses, but that's also publicly visible and wouldn't solve the traffic analysis problem.)
I'm sorry for the rant above, those type of comments get me quite emotional.
I would like to point out some things why Bitcoin and especially Gavin Andresen is so interesting:
1. Gavin is a real forward thinking entrepreneur/hacker who is actually not just trying to make headlines to get venture funded, but is actually quietly building infrastructure for his own startup.
2. If his startup fails, we still get the infrastructure (Bitcoin), public gets enormous value even when/if his startup is dead. Thats quite alot of differrence from startups like cuil or colour, where they burn money (value) and almost nothing is left after the failure, except for cautionary tale how not to do things.
3. Bitcoin (if successfull) brings alot competition to financial sector, and if it gains any significant traction it could change the monopolistic practices of currencies issued by nation states.
I'm well aware of why Bitcoin's fans think it's cool. I still don't want to see a Bitcoin article on HN every three days.
Seriously, look at http://searchyc.com/submissions/bitcoin?sort=by_date. There's a couple of people who will upvote everything with Bitcoin in the title, so every last one of these submissions has made it to the front page.
Sorry that a single Bitcoin link each three days exhausts you. It's been two weeks since my last blog post or submission here. You know why? Because it takes two weeks to put together anything worth reading.
The fact that Gavin was asked (and answered) many of the questions HN-ers have had about escrow and wallet security shows your bias. If having the word "Bitcoin" in the title offends you somehow, please take the time to read what you're bashing so that you can critique it here.
The article is more about the entrepreneur and less about bitcoin.
Also you could make the same argument about Twitter/Apple/Facebook/Google/Android/Node.js before that there was RoR. Are those news(or even PR releases) more valuable than news about Bitcoin?
Yes, it's enough to talk about probably the biggest invention in financial sector in last 20 years. Let's forget all about those calls for entrepreneurs to focus on something more world changing than iphone widgets.
If Bitcoin isn't just a definition of a word "hack", and the most ingenious hack i have ever seen in financial sector which is in serious need of disruption.
Lets better read and talk about Steve Jobs'es new book and the how new ipad is better than older and Ipad.
> Yes, it's enough to talk about probably the biggest invention in financial sector in last 20 years.
Off the top of my head, I would state that the following are unquestionably larger financial innovations in the past 20 years: SPDRs, HOLDRs, ETFs, ETNs, dark pools, target-date funds, target risk funds, auction-rate securities, online b2b markets, online b2c markets, online banking, automated market-making, new insurance products, improvements in risk analysis (credit scoring), removal of information asymmetries, just... so much innovation
The bitcoin market is less than a blip on the radar screen. It's so small that if somebody were to sell 100,000BCN right now, they'd crash the price down to pennies. And if somebody were to buy 100,000USD of BCN right now, the exchange rate would skyrocket. It's a small, illiquid market of people who have, mostly for political reasons, decided that they will convert electricity into a private virtual currency.
I know that right now there are a lot of bitcoin miners, dreaming of how wealthy they'll be once their deflationary-by-design virtual currency takes over the world, but I can't envision any realistic scenario whereby that could happen. Heck, the political risk alone makes it untenable as a serious store of value as it would be trivial for a nation to outlaw it's use, thus destroying the utility.
If you don't want to store your wealth in government-issued currency, that's great. But I'd suggest converting wealth to productive assets (e.g. shares of companies, loans to companies, land and other hard assets) rather than a virtual currency that lacks both the inherent value of productive assets and the transactional ease of government-issued currency.
Excellent points. I'll confirm your assumption about BTC's volatility: a single sell-off of ~10k last week took 25% of BTC's value with it. The limited purchasing power of the BTC economy has hindered economic development, but that is to be expected with any new currency.
However, Bitcoin as a medium of exchange is quite extraordinary and has recently caught the attention of Anonymous because of its "untraceable" (term used loosely) characteristics. There is the potential for Bitcoin to cater to a community outside of sovereign banks. In other words, there are interesting possibilities that exist beyond what goldbugs have in mind.
> but that is to be expected with any new currency.
I think the problem is somewhat unique to unbacked currencies. BTC has value solely because some people agree that BTC has value. It can go to zero (and stay there) for any reason.
The value has no minimum that can be defined by looking at the industrial value of a commodity (as with commodity monies). Nor is there a minimum that can be determined by comparing the money supply to the underlying productivity of a nation whose residents are required, by law, to use the money (as with fiat monies).
As an aside, if I wanted to setup competing currencies, I'd create a brokerage that allows the cheap, easy, instant transfer of ownership of fractional securities from one member to another. Then we'd have tens of thousands of competing currencies, all of which are backed by a combination of assets and productive capacity. Entrepreneurs could even setup companies designed solely to work as currencies.
I know that wouldn't appeal to those who care primarily about traceability, but frankly, I don't foresee any government allowing the widespread adoption of any mechanism that allows for untraceable transfers of large sums of money.
By new insurance products you probably meant something like CDS? Or credit rating agencies using those improvements in risk analysis to rate those CDO's as AAA+++ would buy again?
What you failed to mention is that Bitcoin actually allows virtual currency without a central authority, and the main value is not storage, but in value transfers and lowering barriers of entry. It's actually cheaper and faster(3 days vs 15 mins) already for me to use bitcoin to transfer value inside EU, even with high currency/bitcoin exchange rates.
Did political risk stop torrents from being usefull and disrupting?
> By new insurance products you probably meant something like CDS? Or credit rating agencies using those improvements in risk analysis to rate those CDO's as AAA+++ would buy again?
I made a list of a dozen or so recent, top-level financial innovations (each of which has created many billions of dollars of value), and instead of recognizing that they had massive impact, you ignore all but one of them, redefine the remaining one from 'insurance product' to a credit derivative, and then attack it because of recent, well-known issues with mispriced credit and failures to account for counterparty risk when dealing with mortgage-backed products.
So your argument is basically that government comes to tax bitcoin, or make it a part of a legal currencies, bitcoin will suddenly drop it's value?
You could argue the opposite just as successfully - bitcoin will increase it's value even more because it will become a de facto legal currency (adoption will increase massivelly).
And the "bitcoin = domestic terrorism" attack is quite hilarious (in it's futility) if you compare it to war on drugs. Demand won. You can't make war on something large part of populations want and win.
"So your argument is basically that government comes to tax bitcoin, or make it a part of a legal currencies, bitcoin will suddenly drop it's value? You could argue the opposite just as successfully..."
Only with a heaping helping of wishful thinking. In the real world, when a currency incurs previously-nonexistent liabilities (in the accounting sense) the reaction of people isn't going to be piling in even faster. It may not kill BitCoin but it isn't going to be a moment where the value rises.
"And the "bitcoin = domestic terrorism" attack is quite hilarious (in it's futility)"
For the record, I disagree with the argument that alternative currencies are solely for money laundering or terrorism (note you added the terrorism connection, I just mentioned money laundering). I'm simply saying the government may make it. If you're going to be paranoid and cynical, do it right. If the government perceives BitCoin as a threat to its power, it isn't just going to come out one day and say "We perceive BitCoin as a threat to our power and so we're going to just stomp it out." They're going to have some reason with vague plausibility for enough people to give them cover to do what they want. (In fact I think that there may not even necessarily be any one person who thinks to themselves BitCoin is a threat to the dominance of the US Government and we must come up with some pretext to stomp it out, these things can sort of emerge from the successfully-evolved system itself.)
I actually approve of alternate currencies and expect that they will exist in the future regardless of what governments say. I think the embryonic versions already exist and the technological trend is unstoppable. I just don't think BitCoin is it, as it is today. Someone pointed out to me that someone could take BitCoin and actually provide some sort of backing, and I think that would be a potent combo, though given the "men with guns" option isn't really available that seems to only leave physical assets, which is tricky to pull off at scale. (You would need to actually be ready to provide all the physical assets if there is a run on the currency, no excuses, no clever contractual "no we didn't really mean it", you actually have to have it. Perhaps ironically, if you can, you may never have to, but if you can't, you will certainly have to.) If there's some sort of third option, someone might be able to actually provide the recursive base case and put BitCoin on a firm footing.
Totally agree with you on possibility of governmental attacks on bitcoin, thats why i added the war on drugs analogy, and it doesn't quite matter what political moral high ground excuse will be used to attack bitcoin, be it terrorism or money laundering. That's not the point.
My point is that Bitcoin has backing that is even more powerful than men with guns or physical assets. That backing is subjective value of Bitcoin in people's minds. Think Apple or Luis vutton, it's valuable because people think it is, and if the ideas on which Bitcoin is based are a solid foundation, the value of Bitcoins will only grow.
So for your third option of backing i'm thinking in terms of http://en.wikipedia.org/wiki/Subjective_theory_of_value the "men with guns", or "gold in storage" has the same value as "men who combined great ideas(PGP P2P Crypto Currency) and produced value (Bitcoin)".
From your comment it seems that your are advocating an "intellectual life". Isn't this the same old consumerism, just a changing real goods for virtual ones (aka information)?
Hardly, because for your life to be intellectually interesting, you must discriminate between information. You're choosing not what people will think of you, but what is interesting to you.
