background preloader

Opinions

Facebook Twitter

Is the cryptocurrency Bitcoin a good idea. BitCoins: Four Objections. In response to my recent blog post about BitCoins, several commenters offered responses to my objections. Today I will address these considerations as well as others I came across during my research. Objection: My refutation was circular or my refutation was just an assertion that BitCoins are worthless.

This isn’t the case. I suspect many people interested in BitCoins may have some training in computer science, so I’ll use an analogy from that field to briefly restate my argument. If you aren’t familiar with computer science, feel free to skip ahead to the next paragraph. The value of a currency can be thought of as the result of a recursive algorithm, where the value on day n depends on the value on day n-1, with some adjustments. The problem with BitCoins is that there is no base case because BitCoins have no use outside of being traded around. I am not asserting that BitCoins are “worth nothing.” Objection: Some people do accept BitCoins, so they can’t be a poor currency. L019: Bitcoin P2P Currency: The Most Dangerous Project We've Ever Seen - Launch - Solid discussions of this piece on BoingBoing.net, Hacker News, Slashdot and Reddit. Rob Tercek has a follow up to this piece here. by Jason Calacanis and the LAUNCH team A month ago I heard folks talking online about a virtual currency called bitcoin that is untraceable and un-hackable.

Folks were using it to buy and sell drugs online, support content they liked and worst of all -- gasp! Bitcoin is a P2P currency that could topple governments, destabilize economies and create uncontrollable global bazaars for contraband. I sent the 30 or so producers of my show This Week in Startups out to research the top players, and we did a show on Bitcoin on May 10. After month of research and discovery, we’ve learned the following: 1. What Are Bitcoins? 1. Each owner transfers the coin to the next by digitally signing a hash of the previous transaction and the public key of the next owner and adding these to the end of the coin. The benefits of a currency like this: Where Do Bitcoins Come From?

Bitcoin Cyber Geeks Outraged at Paul Krugman - Business. It's quite common for liberal economist Paul Krugman to ruffle the feathers of Republicans with his Keynsian-infused biweekly columns. But today, The New York Times columnist rattled a more obscure subset of society: the reclusive cyber geeks of the Bitcoin world, who are letting their outrage be known. For the uninitiated, Bitcoin is a digital currency that can be exchanged for goods and services at participating vendors (for practical purposes, there are very few well-known organizations that accept them outside of WikiLeaks). What does Krugman think of this novel currency, which has no transaction fees and doesn't rely on a central bank? After championing it as a "good investment" (its value has "soared" in comparison with the dollar), he dismisses the currency as a workable model for society: What we want from a monetary system isn’t to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich.

Heresy! OMG!!!! I posted a comment. Golden Cyberfetters. Over the past few months a number of people have asked what I think of Bitcoin, an attempt to create a sort of private cybercurrency. Now Alexander Kowalski at Bloomberg News directs me to this Jim Surowiecki article on Bitcoin, which is very interesting. My first reaction to Bitcoin was to say, what’s new? We have lots of ways of making payments electronically; in fact, a lot of the conventional monetary system is already virtual, relying on digital accounting rather than green pieces of paper.

But it turns out that there is a difference: Bitcoin, rather than fixing the value of the virtual currency in terms of those green pieces of paper, fixes the total quantity of cybercurrency instead, and lets its dollar value float. In effect, Bitcoin has created its own private gold standard world, in which the money supply is fixed rather than subject to increase via the printing press.

So how’s it going? The dollar value of that cybercurrency has fluctuated sharply, but overall it has soared.