back to article Bitcoins: A GIANT BUBBLE? Maybe, but currency could still be worthwhile

The Bitcoin economy is a bubble and it'll all end in tears. Bitcoin is the greatest thing since sliced bread and will change the world forever. What might surprise some of you is that there's no contradiction between these two statements. Whether the internet currency is in a bubble or not, and whether that bubble bursts and …

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  1. Rol

    Free trade?

    Is it possible that this could be a currency that transcends geographical boundaries allowing for the first time a free market, no longer held to ransom by the large self serving institutions that want a slice of everything that moves?

    Bet again,

    If this takes off, I give it 3 months before it is swallowed up by the usual suspects to become another controlled market or banned outright as a divisive threat to western democracy.

    1. Danny 14

      Re: Free trade?

      the anonymity of purchase from point A to sale at point B would be an auditors nightmare with respect to laundering practice.

      1. PyLETS
        Meh

        Re: Free trade?

        "the anonymity of purchase from point A to sale at point B would be an auditors nightmare with respect to laundering practice"

        Bitcoin, use of Linden Dollars and online gambling are very minor problems from this point of view compared to cash.

      2. asdf

        Re: Free trade?

        >the anonymity of purchase from point A to sale at point B would be an auditors nightmare with respect to laundering practice.

        for tax evasion they will just focus on the weak point of the system and force the credit card/debit card makers to inform them of any charges to from any of the major exchanges. Granted that won't catch everything but probably the vast majority which is usually good enough for them.

      3. Anonymous Coward
        Anonymous Coward

        Re: Free trade?

        "anonymity of purchase from point A to sale at point B would be an auditors nightmare with respect to laundering practice."

        Lack of anonymity didn't seem to worry HSBC or their customers, nor did dodgy dealings bother HSBC's auditors. The $2bn dollar fine (sorry, "penalty", no criminals to be found here) probably won't either. We'll see.

        http://www.bbc.co.uk/news/business-20673466

        So called "anti money laundering" measures as seen by Joe Public opening a new account etc are for theatrical purposes only.

  2. Danny 14

    not really

    "Of course, holding onto an asset simply because you think the price will rise - and for no other reason than market momentum - that's the perfect recipe for a bubble"

    Not really. A bubble (in this sense) is something being valued wildly greater than it should be. Bitcoins (at the end of the day) are a finite calculable resource, not too different from the real world trading of gold/precious metals. There is a definite limit to the amount in circulation. The dotcom era of buying shares in companies with no growth potential was a bubble.

    If everyone holds onto bitcoins then the value will hold or even increase - especially if side trading occurs. Everyone sells the value will drop. The word you are looking for is speculation.

    The main problem with solid currency trading will be trading with a view to laundering. It is an ideal laundering tool if it can be bought for "cash".

    1. Schultz

      A finite calculable resource [like] gold/precious metals -- NOT

      No they are not alike. I can hit you over the head with my heavy block of gold, I can stand on it to look over your head, I can attract mates with the glimmering qualities of it -- but all you can do is confuse people with those bits and bytes.

      1. Charles 9

        Re: A finite calculable resource [like] gold/precious metals -- NOT

        You can say the same things about a nonmetallic brick. Value is in the eye of the beholder, and intangible things can have value. What is the value of a secret state document, for example? Or a company's private encryption key? Or even the bank notes in your wallet right now (nearly all currencies worth mentioning are fiat and not tied to anything physical)?

        1. Nigel 11
          Mushroom

          Re: A finite calculable resource [like] gold/precious metals -- NOT

          One unarguable difference - gold will survive something which returns civilisation to a pre-1950s level. Of course, its owner might not. Quite probably wouldn't.

          Icon may represent a Carrington event, as well as the obvious

      2. Danny 14

        Re: A finite calculable resource [like] gold/precious metals -- NOT

        I am talking as an investment mechanism or currency not as a usable item, i.e. the concept of trading in gold. The whole purpose of trading in gold was due to its measurable quality and purity vs its rarity (yes various other metals can also be traded so the same could equally apply to platinum, silver, iridium etc) which further morphed into promises and currency. It could also be said that fiat currencies could only be used as toilet paper as a physical entity. The only trust you have in say the euro is that its principal countries will keep it stable. If the PIIGS have another wobble in sync then it will have a bit of a fall. Balance this against a crack in a known measurable algorithm. the strength of a (fiat) currency is down to its reliabilty and faith.

        Trading in property portfolio aggregates might have physical entities attached to them but you dont expect to actually store the properties as an investor (although they do exist and are managed). Buying shares in a company is but a piece of paper tied to a company, in small amounts you get very little except the speculation that they will be worth more.

        Sterling inflation is decided by whim of the bank of england. At least bitcoins inflation is known beforehand.

        Yes of course someone could produce a "coinbits" based on the same variable. The greeks could also decided to go back to drachma too. Auric might sneak a dirty bomb into a gold reserve (I did like that film). As a currency bitcoins are not as far fetched as some other currencies in the world suffering from hyperinflation. Bitcoins do have a planned inflation.

        The original piece talked about a bubble, bitcoins are not a bubble by a long stretch. Sure there is a surge but im sure it will settle at a "value" eventually. Ironically in order to be taken seriously as a currency it will HAVE to settle in order for people to price their goods against it.

        1. David Hicks
          WTF?

          Re: A finite calculable resource [like] gold/precious metals -- NOT

          Sterling inflation is decided by whim of the bank of england. At least bitcoins inflation is known beforehand.

          Which means that when the money supply causes problems in the wider economy, there's nothing anyone can do about it. Some of us consider the bank of england to be a feature, not a bug.

          The whole purpose of trading in gold was due to its measurable quality...

          Yes of course someone could produce a "coinbits" based on the same variable. The greeks could also decided...

          You miss the point - the current bitcoin blockchain really is only a brand name, and other, identical blockchains can be and are being started. There is only scarcity of "Bitcoin" branded coins, no real scarcity at all.

          The original piece talked about a bubble, bitcoins are not a bubble by a long stretch.

          Bitcoins have experienced absolutely classic bubbles twice now, because they are a speculative asset based on confidence and nothing more. 'Fiat' as you like to call it is backed by national economies.

          1. Anonymous Coward
            Anonymous Coward

            Re: A finite calculable resource [like] gold/precious metals -- NOT

            >>> Which means that when the money supply causes problems in the wider economy, there's nothing anyone can do about it. Some of us consider the bank of england to be a feature, not a bug. <<<

            Not strictly true. Think about fractional reserve banking. There is no reason why that could not be applied to bitcoins. In the UK for example, the supply of actual physical money is far, far smaller than the amount of money in existence.

            For example, I start a bitcoin bank, and you deposit 10 bitcoins, which I show on your account. I then lend those 10 bitcoins to somebody else, who uses them to buy something. The recipient of those bitcoins deposits them in my bank. You think you have 10 bitcoins, and so does the guy who received them, because both accounts say you have 10 bitcoins. Of course my bank would have problems if both my depositors wanted their bitcoins back at the same time.

            It's called a bank run, and it happens in normal banks for the same reasons.

            Bitcoins are just like cash in this respect too.

      3. Stoneshop

        Re: A finite calculable resource [like] gold/precious metals -- NOT

        . I can hit you over the head with my heavy block of gold

        Don' t forget to wrap it in a slice of lemon.

      4. Anonymous Coward
        Anonymous Coward

        Re: A finite calculable resource [like] gold/precious metals -- NOT

        Have you ever held $100 bill? It's just a piece of paper. Yet it is worth $100.

        Currency used to be backed by gold or silver - old pound notes used to have 'I promise to pay the bearer...'. They haven't had that for a long time, and the government can print as many as they want these days. And yet people are happy to exchange these 'worthless' pieces of paper for real things.

        Bitcoins have value if others are prepared to accept them in payment for things. It's just a representation of value, it has no real inherent value, just like a bank note.

        Bitcoin is a little more interesting than other digital currencies due to its implementation, it's p2p nature. The fact you can transfer funds relatively anonymously across the web to anyone in the world is quite revolutionary when you think about it. Think porn, gambling...

    2. David Hicks
      Megaphone

      Re: not really

      Bitcoins (at the end of the day) are a finite calculable resource

      Bitcoin the current blockchain, sure. But unlike gold and silver, the only real limit and value is purely in terms of brand recognition. Other currencies using the *exact same* algorithms, source-code clients etc. can (and in fact already have) come into existance. There's no reason that an infinite number can't pop up. And each one can be identical to bitcoin. And this is before we even talk about crypto-currencies with different/competing models.

      It's not like with gold, someone can't just come along and pull another type of gold out of their arse, but with bitcoin you can.

      1. Spiracle

        Re: not really

        Exactly. With BitCoin there's no safe failure mode. The classic example is the escalator - if it fails it becomes... a set of stairs. The value of gold may fall but you're still left with a shiny brick suitable for making non-tarnishing jewellery or conducting electricity with. If BitCoin fails you're just left with a vacuum in the information-space.

        Put another way the value in a BC is similar to the value of something like, say, a Pixar movie. Pixar's product is really just an extremely long binary number (frequently stamped onto a plastic disk), but it's a number that's the result of an intensive computational process that would be almost impossible to reproduce exactly starting from scratch. The problem with a BC is that there's no corresponding utilitarian value - Pixar movies (like gold) are nice to look at. BitCoins, at the end of the day, are just bits.

        1. asdf

          Re: not really

          Wow I see the doomsday bunker crowd is starting to get worried about putting their life saving into gold bricks now the price isn't going up any more. Gold has one enormous drawback though. Its incredibly dense and heavy and like any physical thing it can be stolen so you have to worry about storing it safely (granted bitcoins can be stolen also physically if you store them plaintext like a dumbass or give your passcode away). I am not saying putting your life savings in bitcoin is smart either (i own none but do think the idea is kind of neat) but it is actually possible to carry 10 million dollars of bitcoins on your person right across an international checkpoint (AES-Twofish-Serpent triple encrypted good luck breaking that). If you are counting on society collapsing your best bet is not gold but weapons (can get you things even better than any currency), generators and canned foods anyway.

          1. Rol

            Re: not really

            "You can get a lot farther with a smile and a gun than you can with just a smile."

            Al Capone.

            Well, maybe not his wisdom, but wisdom non the less.

        2. Mark .

          Re: not really

          I guess you can give me your money, as there's nothing like to look at on there either (unless you like pictures of the queen) :)

          (Also, have any of the people talking about the shininess of gold actually invested in it? Normally these days, you don't walk into a shop and buy a gold brick, you invest in gold, and all you see are numbers on a website or paper, you don't get to own or look at your gold.)

      2. Mark .

        Re: not really

        No, but you can pull another scare resource.

        And anyhow, since most currencies are fiat, the comparison isn't really relevant - yes, of course the value of bitcoin is in terms of how many places can accept it, but I don't think that is a flaw. The same applies to currencies. No one cares if I create my own new currency, whether it's paper or virtual, unless I can get people to accept it.

        Also, at best this is an argument against bitcoin being the only virtual currency, not an argument against any virtual currency. I mean, I fail to see how "But I could create a new one" is an argument against any being worthwhile at all. Even if we end up with a world where there are several virtual currencies in use, that's still a world where virtual currencies are in use, and not one where they are all useless.

    3. Someone

      Heisenberg-coin

      Investing in Bitcoin changes the nature of Bitcoin. If people don’t invest in it, and use it like a currency, it has value. As soon as people start investing in it, it stops functioning like a currency, and no longer has any value. Given that some nation states have failed to control their currency, it was hopelessly naïve to think that a very simple money supply algorithm could.

      Everything new is old again

      As a distributed currency, not only does it not work very well as a currency, it won’t be very distributed. We’re seeing mining become increasingly concentrated in those with the money and expertise to invest in banks of single-purpose computing devices. Remember, its the majority of mining power that controls what happens to Bitcoin. Now, it appears, with the Winklevoss brothers, it’s big money cornering the market; the rich using something overvalued to become even richer. That wasn’t the basis of the 2008 financial crisis, was it? I can’t imagine this is the brave new financial world, the cypherpunks were promised.

      Can we fix it? No we can’t

      The majority of mining power could change the underlying supply to try to fix Bitcoin’s problems, but this brings its own problem. Big money has for company big lawsuits. If the supply of new bitcoins is made variable, to stop hoarding and to try to make it work as a viable currency, the price is going to drop dramatically. Partly because of the necessary increase as Bitcoin gets new adopters, but also because of the short-term uncertainty and loss of confidence. If the Winklevoss brothers feel this has caused them to not make quite as much profit as they thought they were going to, what will they do? Find everyone they can who’s associated with the change, and sue them for millions.

      The measure of a bitcoin

      If we look at Bitcoin’s value over its history, we can see two different parts. There’s the bubble part and an underlying part. In the middle of 2011, Bitcoin went through its first bubble, and we’re currently in the middle of a bubble now. So far, the current bubble looks the same as the first one. The spike on the graph is taller and slightly wider, but it’s basically the same shape. The algorithm hasn’t changed and neither has people’s reaction to the idea of making a quick buck. Every time Bitcoin bubbles, it’s going to be the same, until everyone gets bored and loses interest.

      If you take away those two spikes, you get a general trend showing its utility to drug users and American gamblers. Doing this, you get an underlying value for one bitcoin somewhere around twenty dollars. Which is fine, until those who imbibe drugs or gamble in countries where the government would rather you didn’t, move on to “Bitcoin 2.0”, whatever it is, that fixes some of Bitcoin’s negatives.

      1. the_madman

        Re: Heisenberg-coin

        http://upload.wikimedia.org/wikipedia/en/b/ba/Centralised-decentralised-distributed.png

        Decentralised. Not distributed, decentralised.

  3. Anonymous Coward
    Anonymous Coward

    Bitcoin will never see widespread adoption as a financial instrument in its current form. Built into the system is a minimum 10 minute cycle before any transaction is logged, and more realistically it is 60 minutes to ensure the authority of the chain declaring the transaction. That 60 minute wait is the origin of most of the volatility. One "tick" of price changes, and you'll see a lot of sell orders, but these orders won't go through for an hour, and once that hour has registered on the graph, you've suddenly got an ungodly bust on your hands. It's why when bitcoin does crash, as it has many times, it tends to crash over the course of 3-4 hours. This is built into the system and impossible to work around without re-founding the currency, defeating the point entirely.

    However, this reg hack is still entirely right. The volatility, the bubbles, the crashes and tears, won't hinder its use and the inevitable growth of new industries. Bitcoin is the first viable, anonymous and electronic medium of exchange. Like it or not, that has led to an explosion in online gambling and online sales of high-quality narcotics. The volatility will prevent it from ever being used for lower-margin products (not much point selling a 5% margin toaster on a currency that fluctuates 20% per day), but its nature as an accepted transfer medium will always guarantee some use and some velocity, and that could, hopefully, have some nice knock-on changes into the real world.

    1. Jonathan 29

      10 minute wait

      'It is true that transactions can sometimes take tens of minutes to become confirmed. Despite this, retailers can accept unconfirmed transactions with very little risk by simply 'listening' on the network for a double-spend transaction, or partnering with a company that provides this service. After a head start of merely several seconds, the original transaction would reach so much of the Bitcoin network that a fraudulent double-spend transaction would almost certainly be fruitless. An attacker would have to commit easily-detectable fraud, in person, several hundred or several thousand times, before one of these low-value double-spend attempts would likely succeed.

      In short, the 10-minute wait for confirmation is only practically necessary when delivering goods of value that significantly exceed the block reward an attacker would have to risk to perform an attack and where recourse after delivery is practically nonexistent, such as money transfers.'

      from Bitcoin myths

      1. Anonymous Coward
        Anonymous Coward

        Re: 10 minute wait

        @Jonathan 29

        This only acts as an assurance for retailers wanting to check that their transaction is genuine. To use bitcoin properly you need a few more assurances. The big one is that your bitcoin is worth what the product you just sold is worth. That is impossible to assure - every user of bitcoin lives in a fog, unable to work in real-time because of the time delays, which in turn induces significant volatility. That combination of volatility, awareness of the volatility and the impossibility of working in real time precludes the stability needed for widespread legitimate use.

        In addition, there is insufficient velocity to guarantee that you will be able to liquidate your stocks of btc as and when you need to. High-level financial operations generally work on two assumptions. The first is that you can buy/sell in any volume and any subdivision of the base unit (btc meets this), but the second is that you can effectively do this at any time. Bitcoin does not meet this, primarily because of its volatility, and you can see that in any of the graphs of any of the crashes - volume dries up completely. In a traditional, real-time market, the market is lubricated by shorts and suchlike. No such mechanism exists, nor can one exist, for bitcoin.

        1. Anonymous Coward
          Anonymous Coward

          Re: 10 minute wait

          >>> This only acts as an assurance for retailers wanting to check that their transaction is genuine. To use bitcoin properly you need a few more assurances.<<<

          Sure, but on the plus side, once you have a few assurances, you have the cash. Unlike credit cards, where it can be charged back any time in the next 6 months for various reasons.

          So waiting an hour for several confirmations isn't great if you're selling something that needs to be delivered instantly. But if it's something expensive, to be sent mail order, then an hour wait is nothing. Remember - with credit cards, the merchant would have to wait *months* before he knows he irrevocably has the cash, it's not fraud.

    2. trousers_2000

      A more fundamental problem with Bitcoin is that it's supply is fixed, even more so than that of gold, which at least can be mined out of the ground. If the supply of Bitcoin cannot expand as the economy itself expands, it can never be adopted as a viable currency. Neil Irwin wrote an excellent article on this at http://www.washingtonpost.com/blogs/wonkblog/wp/2013/04/12/bitcoin-is-ludicrous-but-it-tells-us-something-important-about-the-nature-of-money/.

      1. Anonymous Coward
        Anonymous Coward

        @trousers_2000

        Irwin's a tool. Traditional currencies need their elasticity because the alternative is once a year around taxation season a chunk of your population are bankrupted through lack of tangible assets. Bitcoin is not a traditional currency - there is no in-built cyclical demand, nor any requirement for its use, as you get with fiat currencies and taxes.

        More to the point, the "deflation" of the goods and services bought with bitcoin is not really deflation. Bitcoin is never expected to stand on its own two feet as an independent currency, merely a medium of exchange. For example, if you go to A Well Known And Completely Illegal Online Marketplace For Drugs and check the prices, then check back an hour later, the prices will all have changed. Why? The prices are all set in real-world currencies, and the displayed btc prices are adjusted to match as close to real-time as can be achieved (the vendors also have a relatively complex system of hedging that they operate behind the scenes to partially protect against price volatility, but their high margins do most of the work in that regard).

        So, bitcoin will only be deflationary if, and only if, you for some absurd reason decide to stockpile your coins. Now, we can tell you, pretty much to the minute, when the supply of bitcoins will dry up, and we can tell you how many there will be. In this instance, there is no reason to hold coins unless you are active in the economy with them. This is one of the most graceful (and near entirely accidental) elements of the currency - there will always be substantial velocity, therefore bitcoins will always be healthy. It doesn't matter if your $10 is buying you ten coins or ten thousandths of a coin, what matter is you get $10 worth of coins and the vendor gets $10 (or close enough) out at the other end.

        No one's planning to start a government with these, yedig?

      2. M Gale

        Gold is mined out of the ground.

        Bitcoins are mined out of racks of Nvidia CUDA machines.

        1. Aldous
          Headmaster

          Re: Gold is mined out of the ground.

          Nvidia GPU's are crap for bitcoin/altcoin mining even the largest EC2 instance struggles to keep up with a desktop and ATI cards

          1. b166er

            Re: Gold is mined out of the ground.

            Both of which pale into insignificance when compared to ASICs.

            It's an arms race based on GH/KWH and therefore, those that have the money to buy custom-built ASIC farms, have the very real advantage. Perhaps the only chance as an independent prospector is to group buy ASIC or join a pool.

            As sad as it is, the money goes to the money and therefore Bitcoin investment is no different to any other, however, unregulated currency distribution is novel and exciting, if only to see how the established institutions deal with it.

        2. Marcelo Rodrigues
          Boffin

          Re: Gold is mined out of the ground.

          Not quite. To mining bitcoins the ATI hardware is much better. Much better as to be about 6 times faster than NVidia hardware.

          It doesn't mean one is better/more evolved than other. It is, rather, a byproduct of the architecture of the silicon.

          NVidia, on the other hand, is faster to folding proteins - or so I've been told.

    3. Old Handle

      You're completely correct about the delays being the major drawback to Bitcoin. And it's worse than what you said, it's 10 minute cycle on average. It can easily take significantly more than that.

      But I'm not so sure this has much at all to do with the volatility. Most people trade Bitcoin in exchanges like Mt. Gox. Once you put cash or bitcoins in, they keep it on account for you and (barring their frequent technical problems) can instantly execute a trade simply by raising the BTC credit in one account and lowering it in another, while doing the reverse to USD credit.

      1. the_madman

        The Bitcoin protocol is more akin to a wire transfer than a payment processor like VISA or Paypal. In the background, these payment processors still takes several days to verify with banks that the money is to be transferred. Especially in the case of Paypal, where the recipient is likely to be receiving straight to a Paypal account, Paypal merely increases their value of their account on an internal database. This is why chargebacks are possible for several days/weeks after the payment has been, "sent": it isn't instant, and it hasn't been verified.

        With Bitcoin, after an hour, the payment is (considered) *truly irreversible*. Even after a single verification, it is very difficult for an individual without access to large amounts of computing power to double-spend.

    4. the_madman

      Transactions are logged immediately. You can't take out a transaction that's already been sent. The best you can hope to do is try to double-spend, but in this case you are still sending the same Bitcoin. The transactions are *irreversibly* verified after 1 hour.

      Especially in exchanges, where the exchange, not the users, controls the private keys that actually own the Bitcoins, it doesn't take an hour for the exchange to go through, it happens immediately. If the exchange is centralised (as most are today), they don't even have to send it out to the Bitcoin network and can instead just record who owns how many internally, only broadcasting a transaction to the network when users want to withdraw them to a different address - which users cannot reverse, as they do not hold the appropriate private key.

      Ultimately, the amount of time a crash takes is completely arbitrary. It can be based on the speed (or lack thereof) of the exchanges processing orders, the rate of the decrease or the amount/reach of news spreading panic and any number of other factors. Just like the sharp increase, the popping of the bubble isn't a rational thing.

  4. pepper

    No tulips this year

    So far the flower fields have been dry and arid looking(well everything has in the surrounding area) due to the persistent winter. Now that we have had rain and sun again there is a big chance the flowers will come through soon. Although not in time to parade them around for the German and Japanese tourists:

    https://en.wikipedia.org/wiki/Bloemencorso

  5. Glostermeteor

    I think the main issue underscoring the viability of bitcoins is the fact it can be hacked or brought down so easily. The fact that hacking one exchange can cause the value of it to crash so heavily to me shows it is more of a commodity than a currency. However unlike other commodities, this is something virtual. The advocates say that it is impossible to create more than 21 million bitcoins, because an algorthm is supposedly unbreakable, but what if someone does break it? History shows us that all secure systems have eventually been hacked by somebody. Great idea in theory but I think it is going to take a lot of time, and yes Conventional money to make it work in practise.

    1. Anonymous Coward
      Anonymous Coward

      If someone breaks SHA-256 they'll have bigger prizes to grab than bitcoins. Particularly when you bear in mind as soon as the crypto chain is broken, the entire currency becomes worthless and therefore not worth breaking to begin with.

      1. David Hicks
        Stop

        "If someone breaks SHA-256 they'll have bigger prizes..."

        But you don't often have to break the algorithm. Most good security hacks find flaws in the way people are using the algorithm and the data, not the algorithm itself.

        Not saying the bitcoin protocol is flawed, I haven't done an analysis and I'm not (yet) qualified to, but just saying 'we use SHA256' or AES, or whatever it might be, turns out not to be very useful by itself.

        1. Anonymous Coward
          Anonymous Coward

          Bitcoin is an open standard - not an algorithm. You're free to implement it however you choose (this is why it is theoretically possible to move away from sha-256). The process is basically just repeating a hash process an arbitrary number of times, so there are few attack vectors, and the window for any attack is small - every 10 minutes a new block is born and the world has changed. It is surprisingly well thought out for something that was planned on the electronic equivalent of the back of a napkin.

    2. Charles 9

      Bitcoin uses the same algorithms governments use to keep state secrets and the like. Trust me, if they break the algorithms behind Bitcoin, they'll have much better uses for the information. As for hacking Mt. Gox and the like, this is more like a bank robbery or the hack of a real bank. It can happen anywhere, with any currency. Bitcoin just gets the press because it's not tied to a government.

    3. Lee D Silver badge

      The algorithm is basically jointly decided on by everyone who runs Bitcoin. If the old "insecure" Bitcoin isn't classed as valid any more, then it has no value any more, and you would need to transfer those bitcoins to a new "secure" version of Bitcoin in order to carry on using them. The software itself has been designed to plug in any algorithm you like to do the coin generation/verification and that's all the security you have (and need).

      No different to "Switch" changing to become "Meastro" or whatever - after a while, people will stop taking your Switch card until you upgrade to a Maestro card - and there's a transition period which can be closely monitored and with exchanges accepting both for a while. And all just by keeping your bitcoin software up-to-date (some of the old bitcoin clients aren't accepted any more because they create transactions that aren't valid on the newer software - this is what the bitcoin "fork" was a few weeks ago) - you have to do that in order for your bitcoins to have any value (i.e. someone else accepting them as currency) anyway.

      And bitcoin wasn't hacked, wasn't brought down (nor were the exchanges - just DoS'd) - this time. Bitcoin is a system comprised of millions of people choosing to agree on what the valid "root" chain is, and what version of software is required, and is still functioning and being used every day - even during the attack and the price crash. But it was like not being able to get to the largest bank in the country for a while to draw out your funds (which, even in real life, would affect the value of the pound etc. the same way it affects the value of the Bitcoin).

      The problem of Bitcoin is not hacking, but really of hoarding and poor news stories of speculation (i.e. predicting doom because a currency value varied for a short time!) - people are betting that Bitcoin will go up and down in value all the time, 50% will make money if they happen to be right at that point, but it has little to do with the actual money in Bitcoin longer-term. In the same way that banks play with my money and may not have enough to cover what my bank statement says at any given point, Bitcoin will be speculated with and people will win, lose, and affect the value of the currency. At the moment, the value can be more volatile purely because 65 million people aren't using it, and the panic that ensues when the largest exchange is inaccessible, etc. But as more people use it, and more exchanges pop up, the volatility decreases - probably to the point of every other currency at best, though.

      I finally managed to get a fifth of a whole bitcoin, my first proper bitcoin transaction that wasn't a test. I intend to hold onto it and see what it's worth in a few years time. If I hear of an impending problem, maybe I'll cash it in with the rest of the cowards. But saying that a currency is useless because the value fluctuates - especially at this early stage where I can count the number of people that I know who understand what it is on a single finger (i.e. me) - is something that can be applied to any currency you like. How much is a Zimbabwean dollar worth now? And how much would it be worth if you'd put it into Bitcoins just before it crashed, and cash pieces of it out in US dollars afterwards as you needed them? It may not be perfect, but no currency is. However, the idea certainly has *VALUE* (as a process, a currency, a transaction method, and even as a savings account) even if that's fleeting, opportunistic or volatile.

    4. the_madman

      Bitcoin itself has no single central point of failure: the weakness you're describing is in a central point of failure in the layer between Bitcoin and conventional currencies.

      As a merchant, I could accept Bitcoin to a Bitcoin wallet without fear that it would be hacked.

      However, you're correct that this would be a problem. A lot of people are looking toward the Ripple project to provide a decentralised method of exchanging conventional currencies into Bitcoins and back. However, that isn't finished yet, so for now, they will have to make do with centralised exchanges.

      1. David Hicks
        Stop

        Jesus, talk about blind faith!

        "Bitcoin itself has no single central point of failure: the weakness you're describing is in a central point of failure in the layer between Bitcoin and conventional currencies.

        As a merchant, I could accept Bitcoin to a Bitcoin wallet without fear that it would be hacked."

        So you're quite happy that the bitcoin protocol will never show a weakness in the face of gathering value?

        Look at TLS - despite some of the best minds in the business being turned towards it, problems and leaks are still found, year after year. You're willing to bet your prosperity on the idea that the same will never happen on BTC, which has had nothing like the scrutiny?

  6. Anonymous Coward
    Anonymous Coward

    If you don't know who the sucker is...

    ...then it's probably you.

    There are probably loads of other issues with Bitcoin but the biggest two I can see are :

    1) The exchanges are not regulated

    I can see a lot of potential for abuse here. Bitcoins aren't very liquid so dodgy exchanges are not necessarily going to get discovered quickly.

    2) Deflation is built in.

    My understanding of Bitcoin (apologies if wrong ) is that if you delete or somehow lose a wallet of Bitcoins then they are gone forever. The total number of Bitcoins is limited too so eventually there's going to be deflationary pressure. If you have a dept in Bitcoins then it will grow perhaps massively in real terms with the deflation over time.

    1. PyLETS
      Meh

      Re: If you don't know who the sucker is...

      " If you have a dept in Bitcoins then it will grow perhaps massively in real terms with the deflation over time."

      Or you will be able to redeem it for nothing when the bubble goes the way of all such. Or it will be like being on the wrong end of a short sell, with unlimited liabilities. People don't contract such obligations, unless they can be recalled at the instant that the limited bond securing the unlimited side of it runs out. It's because BC is inherently unsuitable for denominating debt/credit book-kept contracts that it's likely to remain a networked gambling game, a kind of online poker with a limited chip supply, amongst those sufficiently interested to play it until they lose interest.

    2. the_madman

      Re: If you don't know who the sucker is...

      You are incorrect in stating that exchanges are not regulated. Exchanges have to follow the regulations set down in the countries in which they operate.

      Deflation in a currency only acts as a disadvantage if it is sudden and unexpected. Deflation in Bitcoin is an expected natural consequence of its design and is highly predictable. Please see https://en.bitcoin.it/wiki/Deflationary_spiral. Please note that current volatility due to speculation is not representative of deflation in a saturated economy.

      1. David Hicks
        Stop

        Re: If you don't know who the sucker is...

        Deflation in a currency only acts as a disadvantage if it is sudden and unexpected.

        No, it's just a terrible idea all around. The Bitcoin wiki glosses over a lot of things and tries to handwave away the problems of a deflationary economy as simply an issue of making sure the currency is divisible. Lack of divisible supply is not the only problem with deflation, there are many, not least of which is that people get richer by sitting on cash rather than investing it, and cash becomes an end in itself rather than a means.

    3. Marcelo Rodrigues
      Pint

      Re: If you don't know who the sucker is...

      Yes, if someone loses the wallet, the bitcoins are gone.

      Yes, bitcoins will be more valuable over time, due to the above problem.

      I don't know if the value will grow massively, or at a fast speed. But your idea is, basically, correct.

  7. Gary Bickford

    Tech bubbles FTW

    Tech bubbles have been shown to be a Good Thing. The open question is whether bitcoin is a tech bubble or an asset bubble. One missing ingredient appears to be competition. There are no significant other competitors in this space, to my knowledge, unless you count the myriad other means of electronic financial transaction, in which case Bitcoin is more of an asset bubble.

    Tech bubbles have an interesting profile, as I learned in my own economics classes and research. Almost without exception, they go the same way. Just prior to the collapse, there are a large number of competitors - there were by some counts over 1000 automobile makers in the early part of the 20th century.

    When the bubble bursts, 90% or more of the competitors fail, leaving only those lucky and strong enough to survive. By 1933 there were only a dozen or so automobile makers in the US, and only about 1/2 of those survived the Depression, the war, and the 1950s. The interesting thing is that after 10 years, invariably the market that collapsed is at least four times the size at the peak of the bubble. By then the technology has become an essential part of the economy and raised our standard of living.

  8. Don Jefe

    Worthwhile for Whom?

    Judging by the number of Bitcoin articles I've seen in the past few weeks it seems like the 'currency' is worth more to journalists than anyone else. Sure, it is a temporary speculation vehicle & will make some people a lot of money, but the long term view of this is very dim.

    Disregarding economic values, the biggest issue is going to be political. The minute Bitcoins gain traction they'll have to start playing with mature international financial legislation & that will kill it dead.

    1. Charles 9

      Re: Worthwhile for Whom?

      How would this proceed when Bitcoin has no "headquarters" to speak of and transactions can easily take place outside government reach, thanks to its built in anonymity measures?

      1. I ain't Spartacus Gold badge

        Re: Worthwhile for Whom?

        Charles 9,

        At some point, someone is going to want to convert Bitcoins to someone's currency, in order to spend them. That is the point at which the tax man cometh.

        Just like the way the US hit online gambling. If you can stop the banks and credit card companies from dealing with the exchanges, it becomes hard for Bitcoin to operate. Or they could co-opt the exchanges (or create regulated ones) and do the taxing there.

        The problem for Bitcoin to go underground is that it's supposed to be an internet currency. So you need access to the normal financial network in order to shift cash in and out. Even if you could live in Bitcoinland, getting paid in BTC, and buying your food, clothes and house in it - the companies selling to you would need to pay their suppliers in real currency. It's a chicken and egg situation, governments can regulate it into a tiny niche, up until Bitcoin is much, much bigger.

        1. Aldous

          Re: Worthwhile for Whom?

          Thats why you don't have your exchange in the US same as you don't have a gambling site in the US. Last i checked there are still quite a few sports books around. In non "land of the free's" they can even be on the stock exchange.

          Anyone that says bitcoin is ideal for buying your grocerys etc is in lala land, as a currency for online transactions? thats a diffrent matter

          1. Don Jefe
            Happy

            Re: Worthwhile for Whom?

            If a currency is only recognized in a limited number of places and/or has no mechanism with which to convert it to a recognizable form you get into trading cowry shells and barter systems.

            It's common sense that large governments aren't going to adopt a secondary currency when they've already got their own perfectly screwed up currencies to trade between each other. There's no advantage for them and without the buyin of major economies you're effectively limited in value because it isn't recognized as valuable outside a niche group (see cowry shells above).

            Since Bitcoin is based on individual belief in potential 'market' gains and the manipulation of said market in order to add value, a better plan would be for all the 'Bitcoiners, to buy vast amounts of a legitimate but tremendously undervalued currency and convince merchants and exchanges to accept that instead. At the least you can trade that at major banks & some foreign currencies are nice to look at.

    2. Tim Worstal

      Re: Worthwhile for Whom?

      Dang.

      "Judging by the number of Bitcoin articles I've seen in the past few weeks it seems like the 'currency' is worth more to journalists than anyone else."

      Did you have to tell everyone that?

      TBF tho, much the same is true of any subject that people write about a lot. I'd wager that Maggie's death has made more money for journos than whatever estate she might have left for example.

    3. the_madman

      Re: Worthwhile for Whom?

      Bitcoin provides a number of advantages over current electronic means of transferring value. It is faster, it is cheaper and it can prevent certain kinds of payment fraud:

      1. A Bitcoin payment is irreversible after approx. 1 hour, a bank transfer can be reversed several days after the time of payment;

      2. A typical wire transfer costs ~£20-£30 to complete, with many current accounts costing £6 a month at the bank. Paypal takes a 10% cut from transactions from merchants, and VISA providers can charge as much as 5%, with a greater charge if the payment is reversed. One can send several thousand dollars worth of Bitcoin around the world for a cost of ten cents.

      3. Because the payments are irreversible after one hour, certain high-risk businesses, such as delivery of high-cost international products (http://www.howtoacceptbitcoin.com/2013/01/eliminate-fraud-from-internet-payments.html) or otherwise accepting custom from international customers (http://www.howtoacceptbitcoin.com/2012/10/low-risk-international-payments-for.html) can accept Bitcoin to attempt to reduce the risk of chargeback fraud.

      With its current volatility, it is not useful to fix a product to a Bitcoin price. However, as a means of transferring dollars, sterling and other traditional currencies, it provides a robust solution to current problems merchants face.

      1. David Hicks
        Stop

        Re: Worthwhile for Whom?

        1. A Bitcoin payment is irreversible after approx. 1 hour, a bank transfer can be reversed several days after the time of payment;

        This is a positive for the consumer. If a vendor doesn't fulfill the contract, the money can be recovered. Bitcoin as a payment method is a scammers paradise where unscrupulous vendors can shaft the consumer. We have chargeback and other consumer protections for a reason.

        2. A typical wire transfer costs ~£20-£30 to complete, with many current accounts costing £6 a month at the bank. Paypal takes a 10% cut from transactions from merchants, and VISA providers can charge as much as 5%, with a greater charge if the payment is reversed. One can send several thousand dollars worth of Bitcoin around the world for a cost of ten cents.

        One would then have to pay a fee to get it back out of the bitcoin system, and be taking a huge gamble as to what it was worth when it got the other side anyway. I pay no account fees here or in Australia and was able to complete transfers of multiple thousands of pounds between Australia and the UK for about 15 quid, at a relatively stable, market exchange rate.

        3. Because the payments are irreversible after one hour, certain high-risk businesses, such as delivery of high-cost international products (http://www.howtoacceptbitcoin.com/2013/01/eliminate-fraud-from-internet-payments.html) or otherwise accepting custom from international customers (http://www.howtoacceptbitcoin.com/2012/10/low-risk-international-payments-for.html) can accept Bitcoin to attempt to reduce the risk of chargeback fraud.

        Because of the relatively high risk of small vendors ripping you off or disappearing, consumers should stay the hell away from bitcoin vendors, particularly those in a foreign country, because of the high risk of fraud and lack of protection when you get ripped off..

        With its current volatility, it is not useful to fix a product to a Bitcoin price. However, as a means of transferring dollars, sterling and other traditional currencies, it provides a robust solution to current problems merchants face.

        While completely shafting the consumer. No consumer should ever use BTC as a payment method for the reasons given.

  9. FreeTard

    I pity the fool

    This is so going to end in tears..... time for the popcorn.

  10. Pete 2 Silver badge

    Is your money where your mouth is?

    > Bitcoin is the greatest thing since sliced bread

    So, the only question that remains is: how many have you got (and would you take an assignment that paid in BCs)?

    A person who extols the virtues of any virtual currency but hasn't got any, themself, has no credibility on that topic.

    Bubbles are at best ephemeral, fragile things that disappear as soon as you look at them. Virtual bubbles from virtual trading in virtual goods? Even more so. If the whole mess disappeared tomorrow, at least the BC holders wouldn't have lost anything - since they never had anything to start with.

  11. Jonathan 29

    Digital cash

    I find Bitcoin interesting. The original paper is very well written and worth a read if you have a few minutes. In all these discussions though, I find that the thing that interests me most is often ignored, that is that Bitcoin is designed to work without the need for a trusted 3rd party. There is no payment processor charging transaction fees for verification or negotiating disputes. The lack of chargeback is a very useful feature that has no digital equivalent I think. It is pure cash and doesn’t need to be deposited in a bank and this makes transactions much cheaper. I don’t think you would want to pay for your next TV or car in Bitcoin, but in a future where micro payments for software services and applications is becoming more common and accepted it is a technology that has a lot of potential.

  12. Anonymous Coward
    Anonymous Coward

    Anonymity ?

    Read a couple of assertions that bitcoin transactions are "anonymous".

    Is this 100% true. I'm sure they can be tracked, if someone is prepared to put the effort in ?

    1. David Hicks
      Meh

      Re: Anonymity ?

      All bitcoin transactions are a matter of public record. The anonymous aspect is that you can't easily tie a human to a bitcoin address. That said, the exchanges all use all sorts of ID verification so if you suspected someone of using BTC to buy drugs you (the theoretical you that is a law-enforcement wonk trying to track silk road vendors) could probably set up a sting, follow the coins to an exchange and demand to know the name/address of the accountholder.

      1. Anonymous Coward
        Anonymous Coward

        Re: Anonymity ?

        1) Buy coins

        2) transfer coins to shill btc wallet

        3) repeat 2) as many times for as many tor identities as you can be bothered with

        4) enjoy effective anonymity

        BTC isn't anonymous, but it can come very, very close.

        1. David Hicks
          Stop

          Re: Anonymity ?

          5) Have a heart-attack when someone traces the coins algorithmically to an exchange or other exit-point and tracks you down anyway.

          The anonymity argument really breaks down when you need to convert them back and forth to 'real' currency.

          1. Anonymous Coward
            Anonymous Coward

            Re: Anonymity ?

            If you've found a way to consistently "algorithmically" correlate tor identities to real-world identities, there's a Fields medal waiting for you when you get home.

            1. David Hicks
              FAIL

              Re: Anonymity ?

              "If you've found a way to consistently "algorithmically" correlate tor identities to real-world identities, there's a Fields medal waiting for you when you get home."

              That's not what I claimed and who needs to do that anyway?

              You just need to trace the coins (possible with the blockchain) to an exit point (exchange). Identifying when funds have entered the accounts of an exchange may or may not be all that easy, but if/when you manage it you then use legal muscle to demand they tell you what's up. Tor is absolutely irrelevant to this.

              This may be a lot more tricky if BTC laundering is involved, sure, but tor isn't going to protect you as soon as you try and get the BTC back out into the real world.

    2. Old Handle

      Re: Anonymity ?

      No, it's not 100% true. However there are Bitcoin laundering services. These work by taking coins from a bunch of different people, and giving them back the same amount, but not the same coins. This breaks the direct trail in the public Bitcoin ledger (block chain). Of course one would have to trust the "laundry" not to keep their own records, and even more importantly to give you coins coins back at all.

  13. HamsterNet
    Unhappy

    Limited

    There really is a limited number of bitcoins, in terms of currencies, its a tiny total that will ever be generated at just 21 million! In contract last year according to the BOE there was £3.3E10 worth of £20 notes in circulation and thats just the £20! So to replace £20 notes with bitcoins, when all issued in 2140 they would have to be worth £1,577 each.. Good job they have an 8 decimal places division.

    For a global currency its a tiny tiny total number of coins There will never be enough for just 1 per current Amazon user.

    Good idea, but a limited in scope.

    1. Jonathan 29

      Re: Limited

      One Bitcoin is divisible down to eight decimal places. There are really 2,099,999,997,690,000 (just over 2 quadrillion) maximum possible atomic units in the bitcoin design.

      The value of "1 BTC" represents 100,000,000 of these. In other words, each is divisible by up to 10^8.

      As the value of the unit of 1 BTC grows too large to be useful for day to day transactions, people can start dealing in smaller units, such as milli-bitcoins (mBTC) or micro-bitcoins (μBTC).

      - Bitcoin myths

      1. David Hicks
        Thumb Down

        Re: Limited

        And those with a couple kBTC put away today will be the new kings, all worth hundreds of billions.

        Count me out of an economy that creates a new aristocracy out of hoarders.

        1. Jonathan 29

          Re: Limited

          It is frustrating to see that just 2 years ago Bitcoins were valued in cents. Certainly a few people are millionaires, but you would have had to have some mighty big balls to hold from $0.10 all the way to $260. The recent downward trend has resulted in a lot of selling and distributed the coins more widely. This should continue for a while although I accept there is still a tendency by some to hoard.

      2. Don Jefe

        Re: Limited @Jonathon 29

        You just simplified inflation... You realize that right?

  14. J.G.Harston Silver badge

    Runs on banks? Speculation in tulips? Nah! In Hong Kong we have runs on Cake Shops!

    http://news.google.com/newspapers?nid=1350&dat=19971126&id=h3IxAAAAIBAJ&sjid=7A0EAAAAIBAJ&pg=6706,4649427

  15. Anonymous Coward
    Anonymous Coward

    Digital Currencies in General.

    How do bit coins serve as a store of value? If computers have taught us anything it is that there are people out there smart enough to rip you off on just about anything you are able to put on a computer(s). A currency that will serve as a store of value is clearly of great importance. So, again I ask. Where's the store of value in bit coins? I think that I will stick to the growing majority and put all my faith in a commodity based currency such as copper, bronze or silver. Gold is too narrowly traded to be reliable.

    1. Anonymous Coward
      Anonymous Coward

      Re: Digital Currencies in General.

      "a commodity based currency such as copper, bronze or silver"

      there are no commodity backed currencies because they're stupid

      btcs get their value from two things. 1) they're scarce and 2) everyone agrees they're worth something

      just like every other thing in the history of thingdom

  16. Senior Ugli
    IT Angle

    I am looking into bitcoin as I find it really interesting. I just see that surely soon enough governments are going to misunderstand it and dry to ban it, especially in Britain. It will be the old "it funds terrorism and paedos" story to the public, but we all know it is because banks cant make fees from it.

    Wouldn't it be great if there we no banks in existence and money was traded easily, instantly and without charges.

    1. J.G.Harston Silver badge

      Ten-pounds notes can be used to fund terrorism and paedos, so you'd have to ban them as well.

      1. David Hicks
        FAIL

        LOL

        Ten-pounds notes can be used to fund terrorism and paedos, so you'd have to ban them as well.

        LOL @ expecting consistency in rules from government! Seriously, you think for a second that "buh, buh, buh, cash can do that too!" will mean anything to a fat-headed legislator that gets it in mind to ban subversive crypto-currency?

        1. Senior Ugli

          Re: LOL

          exactly! can exactly ban cash now can we, otherwise bankers wouldnt have much to do would they

  17. El Presidente
    Holmes

    The best thing about BitCoin is

    It allows an individual to circumnavigate the established payment service's "just say no" government issued mandate whilst also neatly circumnavigating the government issue supply and demand mandate.

    For us it's a 'private door to door' win win situation.

    For them it's a fucking nightmare.

  18. graeme leggett Silver badge

    currency meltdown

    Isn't the greatest worry about Bitcoins (or other digitial currency) not that someone might be able to nick, con or otherwise appropiate your coins for their own use, but that someone might try and do a Goldfinger (film not novel) on the whole kaboodle and reduce it all to a worthless memory?

    1. Jonathan 29

      Re: currency meltdown

      This is my biggest fear too. The system is supposed to incentivise miners into keeping the system running rather then acting maliciously, but it could be done. Only recently one of the mining pools had to self scale back their hash rate to avoid getting >50% of the network hash rate. Even shadier the price can be controlled with just a few million dollars selling furiously to induce panic. I sort of assume these price attacks are usually done though to buy cheap coins not to destroy the idea, but long term volatility will destroy Bitcoin for sure.

  19. BlueGreen

    self-declared capitalist endorses evident misallocation of resources as a good thing

    seems to me a bubble's proof of resource misallocation but according to Mr. Worstall, it's potentially a good thing.

    I can see no consistency in this position. If a bubble can be good, like railway mania is good (as it implies in your article) , then how can it a bubble be bad, assuming a positive outcome?

    One can't know it's going to be positive, true, but that would be the same said in any financial investment with any element of risk.

    1. Old Handle

      Re: self-declared capitalist endorses evident misallocation of resources as a good thing

      I think the point was that it can be bad for the people who invest in it, but good for the rest of us. For another example, putting up the Iridium satellites was financially a failure, but they're still up their relaying phone calls and distress signals for people in exotic locations.

      1. BlueGreen

        Re: self-declared capitalist endorses evident misallocation of resources as a good thing

        OK, but isn't capitalism in theory supposed to generally raise the standard for all ie. your "good for the rest of us", in which case it's still like traditional capitalism, only it accepts bubbles as beneficial, paradoxically.

        If capitalism doesn't raise common standards then it has no benefit for the many.

        I may be misunderstanding what the theory of capitalism is.

        1. Tim Worstal

          Re: self-declared capitalist endorses evident misallocation of resources as a good thing

          We are accepting that bubbles are capital misallocation. And that capitalists lose by such. We're also noting a silver lining: which is that sometimes, consumers benefit from such misallocation.

          There's an awful lot resting on that "sometimes" tho.

          BTW, I do jokingly refer to myself as a capitalist. And certianly, the day job involves me acting like one. However, in the political sphere, in the "what should we all be doing" thing, I argue that markets are much, much, more important than capitalism.

          It wouldn't worry me particularly if we became socialist: companies are mutuals, worker or customer co ops like John Lewis, the Co Op itself for example. I'd argue that it's not optimal to try and run something like an oil company in that manner but it wouldn't really worry me.

          If someone decided to abolish markets as the distribution mechanism and the great calculating engine then that would horrify me, have me on the barricades.

          1. BlueGreen

            Re: self-declared capitalist endorses evident misallocation of resources as a good thing

            OK, thanks for clarifying

  20. Herby

    One thing wrong with BitCoin...

    It doesn't have an army behind it. All the other arguments get a little bit silly when you consider this one. Think of "currencies" that have been created out of thin air, and none have succeeded because they can't convert on a whim to something physical (you can hold in your hand) or have an Army behind them. To be "physical" someone needs to fight for their value, thus the Army (or other fighting force). Until then, the value will be up and down like a yo-yo, and just a bunch of promises (hollow ones for sure).

    So, sorry it really won't work.

    You fight for precious metals because you "possess" them in your own way.

    1. Mark .

      Re: One thing wrong with BitCoin...

      This argument has been made a few times, but I don't get it. I mean, when things are tough in the economy, you don't hear the Government go "Okay, let's get the army out and sort out this economy!" I don't see the Bank of England suggesting we call up the troops, because inflation has gone up. How does it help?

      And the physical nature is a red herring too, with most currencies being fiat (plus even for gold, its value is much about investment speculation, and not its physical property, anyway).

  21. Henry Wertz 1 Gold badge

    Bitcoin as a metric...

    Personally, the interesting use I've seen for Bitcoins (which doesn't require possessing any), is as another data point in comparing currency values. Of course this is not useful when the Bitcoin goes through it's own wild fluctuations... but a lot of the time, it's more stable than even gold or silver. So, OK, say the yen went up in value relative to the US Dollar and Euro. Did the yen increase in spending power, or did the US Dollar and Euro both simultaneously decrease? Compare it to other currencies? Quite a few are indexed to the US Dollar or Euro, and a lot that aren't formally end up following the USD, Euro, or Yen closely anyway, muddying the information. Enter the bitcoin -- it's not indexed to anything, so compare the bitcoins per euro, yen, and dollar, and it becomes much clearer just what happened.

    Regarding the bitcoin as a currency -- I have not been able to prove to my own satisfaction that there is no shortcut for making bitcoins. I don't think there is but couldn't prove it. I also couldn't determine just what inherent value these bitcoins have -- but then again, the US Dollar has the same problem now (with nothing but promissary notes and IOUs in the federal reserve to back the dollars now being printed.)

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