Bitcoin Bubble

This story is interesting. The value of a bitcoin in USD had a sharp crash, going from a high of $260 to $130.

Could you imagine a crash of 50% in gold or silver?  There would be a lot of people buying physical, if that happened.  The last time the price of gold sharply crashed in 2008, a lot of dealers ran out of inventory.  The “official” price of gold was low, but there wasn’t much gold available to buy at that price.

I have previously posted on Bitcoin. That led to an interesting flamewar in the comments. There was a lot of hostility to my criticism of Bitcoin. It reminded me of the hostility to my posts on node.js, Stackoverflow, Test Driven Development, Design Patterns, and Ruby On Rails. That’s one lesson I’ve learned from blogging. If a post receives a lot of hostile comments, that’s how I know it’s an important subject and I’m probably right.

I don’t see the attraction of Bitcoin compared to physical gold and silver.  Bitcoin has several flaws.

Every Bitcoin client gets a copy of every transaction.  That makes it very easy for police to track what’s happening with Bitcoin.  If police arrest some Bitcoin users and figure out identities, then they can start figuring out other users’ identities also. BITCOIN DOES NOT PROVIDE STRONG ANONYMITY PROTECTION.

One conspiracy theory is that Bitcoin was set up by undercover State police. They’re tricking stupid people into using an “alternate monetary system” where they can be easily tracked.

The value of a Bitcoin can never be greater than the cost of mining more.  If it was much greater, people would mine more, and drive down the price.  However, due to the “difficulty” adjustment, the more people are mining, the more the cost to mine each one.  Bitcoin can be worth less than the cost of mining more, because it’s a currency with no intrinsic value.  If that happened, people would mine it less. (Some people do mine Bitcoins for free, by using spare CPU cycles on their employer’s computer.)

The sharp fluctuations in Bitcoin’s price is a symptom of a thin market.  If there’s a large block bought or sold, prices can move a lot.

Bitcoin also is useless as money in a SHTF scenario, with no electricity.  Gold and silver would still have value as barter money, although there would be a risk of being robbed.

Bitcoin has another weak point that police can target.  When you exchange State money for Bitcoins, that becomes a regulated financial transaction, with legal restrictions, taxation, and reporting requirements.  Those are the same laws that ruined E-Gold.

I’d prefer a system like Ripplepay, with transactions based in gold or silver, with the right to redeem for physical at any time. Under a ripplepay-like system, each transaction becomes a credit. If A buys something from B and then B buys something from C, A’s credit to B can be transferred to C. Another advantage of such a system is that only people you trust know about your transactions, rather than everyone. If A does not trust C in my example, then the transaction does not offset.

Systems like Bitcoin give alternate currencies a bad name.  Why not keep it simple, and use a system based on physical gold and silver? The only reason electronic money backed by gold and silver failed is that they were ruined by State violence. State laws were changed to make electronic gold and silver illegal or heavily regulated/taxed.

15 Responses to Bitcoin Bubble

  1. Anonymous Coward April 12, 2013 at 7:19 pm

    Our current financial system is run by dishonest, thoroughly nasty clowns whose behaviour shocks the civilized. These clowns hate workers. These clowns hate anyone competent. There are barbarians in pin-striped suits. It is a pity the clown politicians in the UK are so enamored with them. They say the banks provide the government with lots of tax revenue. What a joke? It is just creating money from thin air and any fool can do that. I suppose the trick is to fool ordinary people creating numbers from thin air is somehow clever.

    There should be an alternative.

    But really there is nothing to stop someone creating Bitcoin Alternative #2, Bitcoin Alternative #3, Bitcoin Alternative #4, Bitcoin Alternative #5 and so on.

    There may be a fixed number of Bitcoins, but not the number of Bitcoin competitors.

    A quick Internet search has come up with.

  2. Anonymous Coward April 12, 2013 at 7:23 pm

    Hey FSK, the nasty clown banksters hammered the price of gold today.

    Any comments?

    By the way I still think alternative currencies and commodity backed money is good.

    If a nasty clown can create money from thin air, then THE PEOPLE should be able to as well.

    • It’s only a decrease of a couple percent. As I say repeatedly, gold and silver have crushed almost every other investment over the past 10-15 years. Don’t look at short-term fluctuations.

      Here’s a rule of thumb. If Bitcoin and Wikileaks are promoted in the mainstream media, then they aren’t that subversive to State interests.

      • Another good rule of thumb is if freetalklive and TDV endorse something, then it is subversive to State interests.

          • I am talking about the hosts of who do live in Keene. Ian has been arrested by the police for trivial things yes. Mark has not. TDV is The Dollar Vigilante also. If you don’t know about that group, I would highly recommend it.

            Anyways, here is my conspiracy theory about Bitcoins and the MSM. Maybe, they are giving it attention, to cause a speculative bubble, so that it will pop, and their hope is people will stop using it because it keeps popping. My other idea is simply they don’t understand yet how dangerous Bitcoins will be to the empire, and once they do, you won’t hear anything else about Bitcoins in the MSM.

          • Every Bitcoin client gets a copy of every transaction. That makes it very easy for police to trace. That’s a major flaw.

          • As she says in the article I posted for you “As a final bit of skepticism, the essay called into question the anonymity of Bitcoin. Maybe it’s true, maybe it’s not, but the world is a checkerboard of jurisdictions and there do exist government in the world which do not care whether their citizens fling these obscure bundles of electrons back and forth. And even within the control-obsessed jurisdictions of the US and EU, people can almost instantly create as many accounts as they want.

            Even if they were 100% traceable, so what? The wind is likewise traceable, but tracing it and stopping it are two very different matters.”

  3. Anonymous Coward April 13, 2013 at 7:08 am

    > Testnet2 was just the first testnet reset with a different genesis block, because
    > people were starting to trade testnet coins for real money

    This shows the problem with the system. Although people say the number of Bitcoins is limited. There is no limit to the number of competing algorithmic/mathematical Bitcoin alternatives and competitors.

    Having pointed out a flaw, there still should be a money system outside of the corrupt banking and government system.

    We do not live in a free market capitalist system.

  4. Glad you are bringing these points up. People have said to me, “If you were truly a Libertarian you would be using Bitcoin!” Well first, I have not said that I am or am not a Libertarian, assuming we can define what that is. But getting to the point, it’s simply not private or anonymous at all. Every transaction in history is tracked. Secondly, as I am no cryptography expert, and have not reviewed the source code, and the identity of the people running the system is secret, how the hell would I know whether or not the system is subject to inflation or theft? Also, people are getting huge amounts of their bitcoin accounts robbed by thieves as it is, and there’s no police agency that will investigate.

    Nothing about it smells like currency, safe, or anonymous to me.

    • Right, every transaction is tracked. But they are not tied to anyone. They just say so many Bitcoins were transferred from one wallet to another, but to find out whose wallets those were takes a lot of work. And if one takes enough precautions, they can’t find out.

      • The Bitcoins can be tied to identities later. For example, the police can arrest one Bitcoin user, and then start figuring out the identity of other users. If you own a Bitcoin that was formerly used to purchase “illegal” drugs, you might be accused of “facilitating money laundering”.

  5. Anonymous Coward April 15, 2013 at 10:43 am

    The fall in the price of gold from $1700 to $1400 USD by naking shorting in the corrupt paper markets has been prophesied.
    Come now, you rich, weep and howl for your miseries that are coming upon you! 2 Your riches are corrupted, and your garments are moth-eaten. 3 Your gold and silver are corroded, and their corrosion will be a witness against you and will eat your flesh like fire. You have heaped up treasure in the last days. 4 Indeed the wages of the laborers who mowed your fields, which you kept back by fraud, cry out; and the cries of the reapers have reached the ears of the Lord of Sabaoth.[a] 5 You have lived on the earth in pleasure and luxury; you have fattened your hearts as[b] in a day of slaughter. 6 You have condemned, you have murdered the just; he does not resist you.
    Indeed the wages of the laborers who mowed your fields, which you kept back by fraud, cry out; and the cries of the reapers have reached the ears of the Lord of Sabaoth

    Gold does not corrode. A better translation is “cankered” which means morally corrupted. This could allude to the price of gold being destroyed by corrupt banksters.

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