It’s On …

Erik Vorhees (to Buzzfeed):

“I trade [BTC] often, just not for USD. I don’t want it. Traditional currency is garbage…”

ADDED: Bitcoin super-gravity sucks in Foseti, AoS. … Jim.

ADDED: A surprisingly reasonable Bitcoin article at the BBC site (with Hayek given the last word).

April 11, 2013admin 40 Comments »
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40 Responses to this entry

  • vimothy Says:

    Hasn’t BTC just taken a major dip?

    spandrell Reply:

    $130 right now

    vimothy Reply:

    That’s, what, a 50% dive in total, I reckon. So how are Bitcoiners finding hyperinflation–it’s no big deal, we’re not actually that bothered about price stability?

    admin Reply:

    It’s not hyperinflation. There can’t ever be more than 21 million bitcoins.
    When gold falls in price (as it did recently — although not by 50%) is that hyperinflation?

    Posted on April 11th, 2013 at 1:23 pm Reply | Quote
  • admin Says:

    Volatility is good, for anyone who’s been sluggishly apathetic about getting involved, but wants to buy into them as soon as they can get it together to do so. My guess is that there are a lot of us out there.

    vimothy Reply:

    Volatility is definitely *not* good in a currency.

    admin Reply:

    That’s reasonable, but too abstract.
    ‘Good’, in regards to any commodity, is fully reflected by price. If volatility is economically bad, rather than in some more impressionistic way offensive or contrary to established theory, then BTC will crash and stay crashed. But its volatility is making me — and no doubt very many others — more likely to buy into it (and thus, down the road, support its price). So theory might have to change. After all, we’ve never seen an intrinsically insurrectionary currency before.

    vimothy Reply:

    Let’s say that we have to goods. The price of good A follows some sort of random process, with very extreme and unpredictable swings. The price of good B is constant. Which of the two goods is the natural candidate for money? I would say good B. Perhaps you disagree. So I ask you: What are the characterisitics of a gold standard / “good” / sucecssful currency that you think Bitcoin reproduces?

    Posted on April 11th, 2013 at 1:31 pm Reply | Quote
  • vimothy Says:

    Maybe we could try this: What are the characteristics of a gold standard that you think Bitcoin successfully reproduces?

    admin Reply:

    Limited supply and (better than gold) complete invulnerability to political manipulation.

    vimothy Reply:

    It seems from the latest movements that Bitcoin is somewhat less than completely invulnerable to political manipulation.

    But why should a limited supply be good? Are you thinking about price stability, or something else?

    spandrell Reply:

    Well the money I save keeps its value so I don’t have to take investment risk. That’s the whole point really.

    Of course Bitcoin is not invulnerable to political manipulation as long as the government can put you in jail for using it.

    admin Reply:

    @ Vimothy
    Why do you attribute recent price movements to political manipulation? All I can see is profit taking, volatilized by complex non-linear dynamics.

    @ Spandrell
    Putting people in jail might work, but it would be clearer if we could find a distinct term for that, since it has nothing to do with controlling the money supply, i.e. money-printing. (‘Brutal suppression’ works for me.)

    Christopher Reply:

    The volatility seems due to the vulnerable nature of the existing exchanges.

    If there were more exchanges and they had better DOS protection then future (price manipulation) attacks would not be nearly so effective.

    Ingress and egress is Bitcoin’s Achilles heel during bootstrap.

    vimothy Reply:

    Nick,

    I’ve heard that recent movements were due to someone giving away Bitcoins, and also that they were due to DOS attacks. Both constitute political manipulation, to my mind.

    Spandrell,

    If the goal is stable value, then it’s clear that Bitcoin is not successful, at least at present.

    Moreover, there’s no reason a priori to expect that limiting the supply will result in a stable price. That only follows if we know that demand is also on a steady trajectory.

    If demand is not, then the fixed supply path actively precludes price stability.

    Posted on April 11th, 2013 at 1:34 pm Reply | Quote
  • vimothy Says:

    If gold is money, and the fall is extreme, then yes: that’s hyperinflation. At least as far as I understand the term.

    If the value of the dollar falls by 50% overnight, is that not hyperinflation? What else could it be?

    admin Reply:

    What matters for hyperinflation is the hyperbolic expansion of the money supply. Neither gold nor bitcoin can fall prey to this. They can become worthless (in ‘principle’), but there’s never going to be a 100,000,000 BTC account, or an asteroid-sized gold coin.

    Posted on April 11th, 2013 at 1:37 pm Reply | Quote
  • admin Says:

    @ vimothy
    I agree that volatility is an odd characteristic to tolerate in a currency. Bitcoin, however, is still at an early, anomalous, and — I think it could be said without hyperbole — revolutionary stage. People are not relying on BTC for grocery shopping. They’re buying it to (in no particular order):
    (a) Engage in criminal transactions
    (b) Speculate in a weird commodity with strong upside risk bias
    (c) Escape / wreck / overthrow the State
    None of these functions are seriously upset by volatility, although if your main interest in BTC is that it smooths dope purchases, it’s probably quite annoying.

    fotrkd Reply:

    I was just about to post something similar (and now redundant). I’ll add one thing: maybe it’s best to think of bitcoin as a commodity first and then as a currency under construction. Stability is the last thing it will need.

    vimothy Reply:

    If there’s a lot of volatility then there’s a lot of risk. That’s fine if you want to speculate, or overthrow the state, perhaps–assuming that you are “risk seeking”–but I don’t see how it is a desirable property of money.

    If Bitcoin is superior to other forms of money, then it must be superior in some concrete way. But if it is more volatile than other forms of money, then in this dimension it is unambiguously worse. So in what way is it superior? And if it is not superior, what is the point?

    Nick B. Steves Reply:

    Bitcoin can be spent on the internet. I.e., they can literally change hands, without the “have my bank contact your bank” friction, which so far has always meant a 2-5% hit on vendors.

    That’s it. That is its innovation. But it’s a big one.

    Nick B. Steves Reply:

    None of these functions are seriously upset by volatility, although if your main interest in BTC is that it smooths dope purchases, it’s probably quite annoying.

    The dope sellers and purchasers are almost entirely indifferent to price. They are both trading in and out (respectively) of government issued currencies within minutes. Unless, as was true til yesterday, holding bitcoin happens to be profitable. Then they’ll hold a few extra. If the btc/gov’t currency price crashes (like yesterday), then they’ll go back to holding only what they need for a few minutes and being relatively indifferent to price. Seems to put a stable floor on bitcoin price. I don’t know what it is, but it is non-zero.

    Posted on April 11th, 2013 at 2:04 pm Reply | Quote
  • Thales Says:

    I’m going to have to agree with Moldbug on this one — on the fundamentals and also entropy being the safer bet. The Feds won’t tolerate serious competition to FRNs. They will destroy BTC, clandestinely if they can (as they’ve been doing with PMs) via the marketplace. If that fails, they will declare it an enemy of the state and fold it into the permanent War on Whatever.

    admin Reply:

    Hence: “It’s On …”

    Thales Reply:

    Indeed it is.

    I’m reminded of that young “seasteader” who, I suspect, within days of finally realizing his dream would be surprised to find himself rotting in the brig of some government warship and contemplating the true meaning of “sovereignty.”

    Christopher Reply:

    Then we will adapt and build a better Bitcoin.

    Lather, rinse, repeat.

    Each time we’ll learn from the past and do it better.

    Didn’t Nietzsche say that “once you’re pitted against the most intelligent thing happening, it’s game over, man”?

    What could be more fun than that?

    Posted on April 11th, 2013 at 2:08 pm Reply | Quote
  • Christopher Says:

    Nemo has completed his gentle introduction to Bitcoin here:

    https://self-evident.org/?cat=12

    It’s a must read.

    “Well, that pretty much wraps up my introduction to Bitcoin. There is quite a bit more to say; just off the top of my head:

    Economics and incentives
    The security (or lack thereof) of Bitcoin’s hash
    The threat (or lack thereof) from quantum computers
    Addresses, transactions, and scripts
    Scalability

    …and so on. But there is no obvious order in which to cover them. So I think I will pause here and ask:

    Any questions?”

    admin Reply:

    “The threat (or lack thereof) from quantum computers”
    — So, either anarcho-capitalist crypto-currency is unstoppable, OR quantum computing goes nova and dissolves the earth in Singularity (and perhaps both). Not a dilemma that offers much comfort to the Throne and Altar-types.

    Christopher Reply:

    “Not a dilemma that offers much comfort to the Throne and Altar-types.”

    Isn’t there a Beast in their eschatology, too?

    Nick B. Steves Reply:

    Not a dilemma that offers much comfort to the Throne and Altar-types.

    Yeah, well, while it lasts, we get comfort the old-fashioned way.

    Posted on April 11th, 2013 at 2:15 pm Reply | Quote
  • fotrkd Says:

    @Christopher

    If there were more exchanges and they had better DOS protection then future (price manipulation) attacks would not be nearly so effective.

    I agree, but Bitcoin is really broken right now (try finding a chart or price that stays active for more than ten minutes…). Long-term we can sit here and consider it a good thing to the extent it leads to evolution, but from an investing point of view it must be off-putting. I wonder if a slew of media horror stories will follow alongside an attempt to start enforcing fincen regulations – i.e. a concerted effort to capitalise on the ill-feeling of people who’ve lost money and the general public who are already fed up of hearing about it. Perhaps a return to the shadows? That said 1700% plus growth in one quarter can’t really be ignored…

    On the more exchanges point, while I agree it would be useful do you think it’s likely? I can see room for dominant national exchanges, but MT GOX is already demonstrating how these things naturally become concentrated.

    Christopher Reply:

    “I wonder if a slew of media horror stories will follow alongside an attempt to start enforcing fincen regulations”

    Yep, you can just feel the Cathedral’s immune system lurching into motion.

    “On the more exchanges point, while I agree it would be useful do you think it’s likely?”

    I have no idea. That’s what makes this so fascinating. I can envision exchanges of increasingly darker shades of grey coming online, but beyond that I’m blind.

    Posted on April 11th, 2013 at 4:52 pm Reply | Quote
  • Nick B. Steves Says:

    I realize this blog and its commentariat is nothing if not a groups of folks who love getting ahead of themselves… but LET’S NOT GET AHEAD OF OURSELVES.

    Mt. Gox has halted trading to 2:00 UTC (I’m assuming that corresponds to 10pm EDT)… I wanted to put 5 buys (spanning two orders of magnitude) at $50, 15.80, $5, $1.58, and $0.50 (equal USD amounts) and they’ve closed off new orders too. Darn. Probably a good deal in there, somewhere.

    Mt. Gox’s last trade is USD123.40. Sure, that’s off ~$140 from its peak yesterday, but also about where it “closed” (mt. gox never closes… until today) on April 4, a whopping whole week ago.

    It will be very interesting to see the action over the EDT night. Before the closure, the price had already “settled” in a USD120-160 range. Not exactly settling, but not exactly approaching the Moldbuggian zero either.

    Am I the lone voice here to suggest that USG may not, or at least all diverse interests within USG may not, want bitcoin to fail. The FBI, for instance, would be very happy for the existence a form of cash that is much MORE traceable than paper dollars. And I am far from convinced that agents of USG are driving the current uncertainty. It is much more likely (IMO) that JPM and GS are using spare change dug out from their figurative seat cushions to manipulate this market. And driving it down means they can get a much bigger piece of a (fundamentally, algorithmically limited) pie.

    And if JPM and GS are in this market, no matter how few soda stained pennies they’re in for, it means that some smart money, money that will grow even if Sol suddenly goes red giant, then the market is a smart one to be in.

    Why would smart money be in the bitcoin market, if in fact it is?

    Although no mainstream media attention (literally zero that I’ve seen) has been directed this way, there are fundamentals out there to find. Interestingly, the fundamentals of the bitcoin market easily obtainable from the block chain information itself. (Try that with green pieces of paper!)

    One of the most interesting fundamental views is Trade Vs. Transaction Volume. The mere fact that such a graph exists shows there is an actual bitcoin economy out there (i.e., the ratio has a non-zero denominator). There mere fact that a bitcoin economy exists, means it is money… for some tiny fraction of the global economy. Just like the Namibian Dollar, really.

    The other thing that it is EXTREMELY interesting (and totally ignored by mainstream media) about this particular graph (Trade/Transaction) is that during this year, while it has had considerable volatility, the general trend has been… down. Bear in mind that during this same period, the USD price of bitcoin went from around say $14 to $266 (yesterday), to $123.40 right now, to whatever it will be tomorrow morning.

    So all the while all this attention has been given to (the practically vertical) bitcoin exchange rate that, there is a little economy out there (like Namibia) just going on its merry way–GROWING at least well enough to keep pace with the trade volume. Isn’t that amazing?

    And if it WERE the Namibian economy, just think how the Namibians would feel if their currency had gone vertical against the rest of the world’s currencies: Nobody in the world could afford their uranium. And that 14.5% of the Namibian economy devoted to tourism? You can kiss that good-bye. Fortunately for Namibia, they have a Central Bank, and aren’t afraid to use it.

    But bitcoin is designed to be a hard currency that cannot be diluted by political actors (and thus used to reward friends and punish enemies). That means that no nation gets hurt if bitcoin goes vertical. Well, no nation that didn’t happen to borrow a lot of bitcoins (back when they were way cheaper). And no holder of bitcoins get harmed. Hell, that stoner that had 0.5BTC leftover from his last buy, is positively tickled pink that it buys twice as much pot today.

    Of course, when bitcoin halves (quarters? decimates??) in price, the stoner won’t be so happy with the leftover BTC… but hey, live and learn. Next time only trade for the exact number of BTC you need to complete the buy. This is the crucial point: The stoner needs bitcoins to buy pot. The dealer needs to accept bitcoins to make the sale. The total value of all this pot buying has an equivalent dollar (or Euro or Yuan) value. That means that BTC have a calculable non-zero value on economic transtions alone.

    Add to this transaction (“GDP”) value, the store of wealth value (harder than gold), and the intrinsic advantages of bitcoin (you can spend CASH on the internet).

    That is the reason “Smart Money” (from GS, JPM, and their ilk) may be in this market.

    Posted on April 11th, 2013 at 6:07 pm Reply | Quote
  • Nick B. Steves Says:

    Live(ish)blogging the EXCITING reopening of Mt. Gox, which after a 12 hour “cooling off” period, reopened at 10pm here in the eastern US.

    It is important to note that trade DID continue at the the various other exchanges (btce, bitstamp, bitfloor, etc.) and BTC/USD traded in the $50-$100 range. But these exchanges are so tiny that even a few hundred bitcoin moves the markets immensely. The world (of bitcoin) was waiting for Mt. Gox to open and see what would happen.

    Starting at 10pm local time, Mt. Gox’s reported USD price, as expected, fluxuated wildly between a low of $65 and a top of $130. (Yours truly picked up a, sadly, tiny buy at $90) At the time of this writing, it is printing at about $98, which is just above the closing price on April 2.

    UPDATE: just noticed that bitcoinity hasn’t updated the Mt. Gox report in over an hour and Mt. Gox’s site isn’t loading. Don’t know what’s happening. Stoners may have to gather up some government issued currency and hit the streets tonight.

    Nick B. Steves Reply:

    Update 1:51am local time, Bitcoinity and Mt. Gox back up. Last trade: USD 96.52. <yawn>

    Is IT on?

    Who knows…

    Nick B. Steves Reply:

    Update 10:02 local time, all major bitcoin systems normal. Last trade: USD 79.05. Still lots of volatility, but we’re getting pretty used to that. Bounced of ~USD 54 1.5 hrs ago.

    Is this the beginning of the end? Who knows?? In 2011, the USD price spiked to $31 only to fall to the mid $2s. Bitcoin climbed back, slowly, with little mainstream attention.

    It is likely that mainstream attention drove the recent spike and crash (correction ?) debacle. Mt. Gox was not prepared for the overwhelming number of new accounts and sheer trading volume that built up exponentially over the last couple months. It is not clear if anyone could have been.

    Mt. Gox has been communicating fairly well, tho’ hardly NASDAQ-esque, on its facebook page. The main site itself broadcasts user info far too infrequently to keep anyone updated.

    As I’ve said above (tldr;) there are fundamentals in this (i.e., bitcoin) economy but almost no one is paying attention to them…

    Felix Salmon, paid Professional Journalist, and card-carrying Cathedral Member, whose oft-cited Reuters piece (even carved in the stone of Wikipedia!) and in his interview with the insufferably hip Planet Money NPR show think that “there’s nothing there”, that the speculative FX trade is the only thing it has going. Jeez, if he’s so interested, you think he might have at least heard of the blockchain info site. That isn’t what the numbers show.

    admin Reply:

    This commentary is hugely appreciated.

    Posted on April 12th, 2013 at 4:48 am Reply | Quote
  • admin Says:

    Peter Thiel needs to get over his Paypal parenting and open a Bitcoin exchange in Hong Kong.

    Posted on April 12th, 2013 at 5:07 am Reply | Quote
  • admin Says:

    @ Vimothy
    “What are the characteristics of a gold standard that you think Bitcoin successfully reproduces?”
    — You might find this comment interesting (the entire thread is worth grazing)

    Posted on April 12th, 2013 at 5:17 am Reply | Quote
  • spa Says:

    @admin
    Maybe he’s behind this

    https://ripple.com/

    Posted on April 12th, 2013 at 5:41 am Reply | Quote