"Bitcoin is the beginning of something great" Nassim Taleb, 3/20/13

Jim H
By Jim H on Wed, Mar 20, 2013 - 8:48pm

[–]nntaleb[S] 142 points

4 hours

ago

Bitcoin is the beginning of something great: a currency without a government, something necessary and imperative. But I am not familiar with the specific product to assert whether it is the best potential setup. And we need a long time to establish confidence. I only talk from skin-in-the-game. If I had money in bitcoin, I would have reported it. But I don't yet. I am waiting to understand it better, not with my brain, but with my experience...

 

http://www.reddit.com/r/IAmA/comments/1aoi0s/iam_nassim_taleb_author_of_...

16 Comments

Jim H's picture
Jim H
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Bitcoin vs Fractional Reserve Banking (aka the Dollar)

Great article (in my view) published in DGC (digital Gold currency) magazine.  For those newbies, let me interpret a few of the lines in the longish piece;

Link:  http://www.dgcmagazine.com/bitcoin-the-banking-system-not-just-different...

The rules that determine Bitcoin’s creation and supply do not change. Only 21 million Bitcoins will ever be created and this creation happens on a precise schedule.  Bitcoin is ruled by math. As such, these two systems are not only fundamentally different, but incompatible.

This statement is pretty much true in practice.. but not exactly true in terms of design;  Bitcoins are "mined" or created over time as the "miners" who participate in maintaining the Bitcoin network by putting their computers to use in said endeavor are rewarded by earning newly created Bitcoins.  The difficulty in the creation of new Bitcoins, the amount of computing power one must expend to earn each new one, will tend to increment in a regular way in the time domain... but the actual regulation of new Bitcoins happens in the counting domain.  If many of the existing miners stopped mining... the difficulty factor would increment more slowly.  Just a nit.

  Of course the inability to manipulate the Bitcoin supply does not mean Bitcoin fractional reserve banking is not possible. You could have a Bitcoin accepting bank that issued vouchers or receipts in excess of their Bitcoin deposits or reserves. After all, gold storage facilities did exactly that hundreds of years ago which is what lead to modern fractional reserve banking.

But wait, Darbikrash says that infinitely expandable Fiat money and the associated fractional reserve banking scheme is a natural extension of the relationship between labor and ... oh.. forget it.  Just kidding. 

A serious limit on money creation would cripple the current financial system; as such Bitcoin (and gold), are not compatible with fiat national currencies and commercial banking.

And there you are... yes.. the fractional reserve banking system needs continuous, exponential growth in order to remain functional and healthy.. just as Chris teaches.  

 

 

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gillbilly
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Jim, this was sent my way...

Regarding bitcoin:

http://www.zerohedge.com/news/2013-03-21/us-begins-regulating-bitcoin-wi...

I still like the concept, but this is why I would never buy.

Appreciate any comments you might have

Jim H's picture
Jim H
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Thank you gillbilly

Several folks have actually brought this to my attention.. either by posting in different threads, or PM.  I thank you all and appreciate the thoughtfullness of this community. 

I think some form of recognition by the monetary powers that be is inevitable.  In the case of this latest regulatory publication, I think ZH in particular has overblown the issue.  Here is a more level-headed take on the matter;

http://bitcoinmagazine.com/fincen-bitcoin-users-not-regulated-exchanges-...

Finally, a user is simply someone who uses virtual currencies to buy and sell goods and services.

The major boon from the document for Bitcoin is this: users get off lightly. In fact, FINCEN does not intend to touch mere users of virtual currency at all; the document states, “a user who obtains convertible virtual currency and uses it to purchase real or virtual goods or services is not an MSB under FinCEN’s regulations. Such activity, in and of itself, does not fit within the definition of “money transmission services” and therefore is not subject to FinCEN’s registration, reporting, and recordkeeping regulations for MSBs.” The document also offers protection from “prepaid access” laws that regulate gift cards and the like, saying that “a person’s acceptance and/or transmission of convertible virtual currency cannot be characterized as providing or selling prepaid access because prepaid access is limited to real currencies.” Finally, even exchanges are safe from “foreign exchange” regulation, the set of rules governing businesses that offer exchange between two or more national currencies.

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gillbilly
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Thank you Jim

My guess is the truth lies somewhere in between considering the sources. Oh and I should not have used the word "never." I try never to use the word:) ... "not for now," at least not until things shake out. If TPTB give it their blessing (although not receiving their blessing is more appealing), then who knows.

Jim H's picture
Jim H
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New Bloomberg Article on Bitcoin; balanced

A very good article IMO.. balanced, and written by someone who actually understands Bitcoin as a programmer:

http://www.businessweek.com/articles/2013-03-28/bitcoin-may-be-the-globa...

I very much agree with the author's core conclusion.. namely that one of the drivers of Bitcoin's success is revulsion against the nature of fiat currencies today;

It’s gold-bug thinking reinvented for an age of fluid transparency and instantaneous transactions. And as such it’s an excellent indicator of anxiety. Where you see Bitcoins in action you find a weird and heady mix of speculative angst, a fear of being left behind, and people who appear to have lost faith in institutions, who feel most left behind. These are people who’ll trade in purely arbitrary tokens, willing to forgo the comfort of banking systems for the weight of mathematics and the Internet behind it.

Bitcoin isn’t tied to any commodity—besides trust. As a statement on the global economy, Bitcoin is hilarious. As a currency for the disenfranchised and distrustful, it’s as serious as can be.

I don't believe that you can fully "get" Bitcon unless you understand fiat currency as debt.  It is only in contrast to the true ponzi of today's endlessly printed fiat currencies that one can comprehend the drivers behind the Bitcoin phenomenon.  Oh, and one Bitcoin will presently cost you $94 as per MtGox... significantly more via bidding on ebay, where this one has 16 bids driving it up to $143; 

http://www.ebay.com/itm/1-Bitcoin-One-Bitcoin-multiple-delivery-options-...

That crazy ole free market.. what are they all thinking?
 

Jim H's picture
Jim H
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Fox News Article on Bitcoin

http://www.foxnews.com/tech/2013/03/29/digital-currency-bitcoin-surpasse...

“Because of what's going on in Cyprus and Europe, people are trying to pull their money out of banks there,” Tony Gallippi, the CEO “BitPay.com,” which enables businesses to easily accept bitcoins as payment, told FoxNews.com.

In Cyprus, the government is considering taking a percentage of all citizens’ bank accounts to solve its fiscal woes. That has led Cypriots -- and other Europeans worried about the same thing happening to them -- to take their money out of banks.

“So they buy gold, they put it under the mattress, or they buy bitcoin,” Gallippi said.

Bitcoin demand has also increased, Gallippi says, because last week U.S. regulators issued the first official guidelines for private digital currencies. Prior to the regulations, the legal status of the currencies was in doubt.

“Now people can see that it's not illegal, that it's not banned,” Gallippi said.

 
Jim H's picture
Jim H
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Denninger comes out against Bitcoin

I think it's a stretch to say that a currency is bad because it gains value over time...

http://market-ticker.org/akcs-www?post=219284

Jim H's picture
Jim H
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Bitcoin now sports a $100 handle....

Mo Greater Fools.. or something of true value?  I say it's real.. and will continue to grow in buying power. 

From Mike Krieger today;    http://libertyblitzkrieg.com/2013/04/01/tom-woods-talks-bitcoin-fantasti...

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Sebastian8
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Bitcoin ATM

On CNBC:  http://video.cnbc.com/gallery/?video=3000157766

It is getting more coverage every day.

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richterc
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Its all metric and in EUR...

Its all metric and in EUR... sorry for that.

But my "back of the envelope" calculations might be usefull to the boubble discussion. ;)

 

 

  price in EUR   price in EUR   price in EUR    
  1   40   82    
     
Currency   EUR   Gold   BTC    
       
monetary base   5,113,000,000,000 EUR   171,300,000,000 g   21,000,000 BTC  
     
number of users   700,000,000   7,058,000,000   1,764,500,000 (asumption: 25% world population has internet access)  
     
     
equal distribution 7,304 EUR   24.27 g   0.011901 BTC  
current amount in EUR 7,304 EUR   971 EUR   0.976 EUR  
     
     
fair value   1 EUR/EUR   300.96 EUR/g   613,733.91 EUR/BTC  
what would be 1 million? 1,000,000 EUR   3322.75 g   1.63 BTC  
current amount in EUR 1.00 EUR   132,910.09 EUR   133.61 EUR  
factor (under) valuation 1 x   7.52 x   7,484.56 x  

 

Jim H's picture
Jim H
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New Bitcoin Article by the young economist John Aziz

http://azizonomics.com/2013/04/03/of-bitcoin-the-state/

Bitcoin is very much in ascendancy. While it has for over three years existed as a decentralised and anonymous electronics payments system and medium of exchange for online black markets and gambling, more attempts to integrate Bitcoin into the wider economic system — most notably the integration of Bitpay with Amazon.com — have brought Bitcoin to the attention of a wider segment of the population. Alongside this, the egregious spectacle of depositor haircuts in Cyprus, and the spectre that depositor haircuts might happen elsewhere seems to have spurred a great new interest in alternatives to bank deposits in particular and state fiat currency in general. Consequently, the price is soaring — pushing up above $140 per bitcoin at the time of writing. Of course, this is still far less than a single ounce of gold currently priced at $1572.

There are many similarities between Bitcoin and gold. Gold is cooked up in the heart of supernovae, and is therefore exceedingly rare on Earth. It has a distinctive colouring, is non-perishable, fungible, portable, hard-to-counterfeit, and even today so expensive to synthesise that the supply is naturally limited. That made it a leading medium-of-exchange and store of purchasing power. Even today, in an age where it has been eclipsed in practice as a medium-of-exchange and as a unit-of-account for debts by state-backed fiat monies, it remains an enduring store of purchasing power.

Bitcoin is an even more limited currency — limited by the algorithms that control its mining. The maximum number of Bitcoins permitted by the code is 21 million (and in practice will gradually fall lower than this due to lost coins). Gold has been mined for over 5000 years, yet there is still gold in the ground today. Bitcoin’s mining will be (in theory) complete in a little over ten years — all the Bitcoins that there will ever be are projected to exist by 2025. True, there are already additional new currencies like Namecoin based on the Bitcoin technology but these do not trade at par with Bitcoin. This implies that Bitcoin will have a deflationary bias, as opposed to modern fiat currencies which tend toward inflation....................................

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V
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Jim H's picture
Jim H
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An entertaining Bitcoin story

My daughter is in high school.  She knows a kid that is a bit of a computer savant.  She mentioned to him that her dad was talking about Bitcoins... and he realized that he had bought a quantity of them a few years ago but had forgotten about them.  He checked the wallet and showed more than 4000 BTC (my daughter showed me the picture on her cell)... the kid has over $600,000.  True story.  

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markjr
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I think Denninger misses the point on this one.

And comes off sounding like a windbag to boot.

What I'm finding is that every single criticism I've seen against crypto-currency applies moreso against fiat than it does against bitcoin.

Adam Taggart's picture
Adam Taggart
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Posts: 3072
Soliciting questions for Bitcoin interview

We'll be interviewing the lead developer for the Bitcoin foundation tomorrow. Respond to this with any dearly-felt questions about Bitcoin you have, and we'll do our best to add them into the interview if there's time.

cheers,

A

mammamia's picture
mammamia
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Posts: 33
questions for the guest

Hi Adam, I have two questions that I would like you to ask.

1) Bitcoin is always presented as a digital equivalent of Gold. But Gold rarely is lost. Every time a person dies his gold pass to his successors (or to someone else that "finds" them). Instead it is pretty plausible that a good percentage of people that die sudden death will not have backed up their bitcoin wallett in places accessible to anyone else (I know I haven't). As a result I can see a slow but steady diminishing of the bitcoins in circulation. Do you see any problem with that? Is there any mechanism that could be put in place so that wallett that are not moved for more than a generation start to leak their bitcoins back in the network?

2) As Bitcoin grows they will hit strongly against governments. I can see how some government might make their possession illegal. We know Bitcoin are a transparent medium where anyone can see anytransaction. Only we don't know who is the owner of a wallet. How can people protect their privacy in this system?

3) In what ways can the rule that govern bitcoin change? Is there a distributed group of people who is in charge?

 

Thanks.

P.S. the third question is the least important. But I think the first two are quite fundamental.

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