Bitcoin...the New Unbacked Etf

[MrPants]

Blockchain.info are not accepting sterling at the moment. Too many people like me trying to buy before it breaks through $100 I expect. I'll wait for a pullback and go buy in cash I think.

[Traktion]

Blockchain.info are not accepting sterling at the moment. Too many people like me trying to buy before it breaks through $100 I expect. I'll wait for a pullback and go buy in cash I think.

Re blockchain.info, It could be related to the bank hols too. I'm not sure, really. I still get a Sofort link, but I've not tried that method yet (I have insufficient quota, apparently).

[Police]

Is there a way to buy them easily and/or anonymously?

I have to say I think there's a very high chance the state will find some way to shut down this threat to their fiat power, but in the unlikely event they can't manage it, it might be worth owning a handful as a bit of a punt.

https://www.spendbitcoins.com/buy/

Just deposit money over the counter.

[The Spaniard]

Bill Still has given permission for this criticism of Bitcoin by Shelby Moore III to be cut and pasted here from his Facebook official page:

Bitcoin: The Digital Kill Switch

by Shelby H. Moore III March 29, 2013

Bitcoin is the first peer-to-peer (P2P) digital currency and payment system to gain significant interest. This month its marketcap surpassed $1 billion.

P2P currencies promise some differences from credit cards, such as increased privacy, no control by authorities, instant signup, lower fees for the merchant, and no chargebacks (buyer at the mercy of the merchant to issue refund if dispute).

Unlike a credit card which allows the merchant to see your details, making unauthorized charges to your P2P account is impossible, unless you allow someone to get your private key. Note credit cards are adding for example Verified By Visa to provide a similar degree of security.

The government control increased on March 13, when FinCEN ruled that transactions for goods and services paying with P2P currency are not regulated, yet exchange to other currencies is regulated and can't be anonymous. Since most users need to exchange from legal tender to and from P2P currencies, some of the purported privacy has already been lost. Also instant signup has been effectively eliminated for many, as now many new users must "practically give a DNA sample" to become verified by exchange providers— however this tsuris may not exist in all jurisdictions.

The anonymity of payments for goods and services is given by the fact that each sender and receiver of a payment is just a number without any other identifying information attached. New numbers can be generated by users at-will. However, the authorities regularly collect information from the internet about usage activity using various means of tracking such as man-in-the-middle routers, spyware, and requests for information from sites that collect information via cookies such as Google's ads and Facebook's Like that appear on many pages of the internet.

So what are the compelling advantages of P2P currencies, since most of the differences from credit cards are being diluted?

For merchants it is the elimination of the 2 - 5% fees charged by credit card companies, the elimination of the ability of the buyer to issue a chargeback, and accessing a new market of highly motivated buyers. In some cases however, the buyer will not like this "no chargeback" provision and prefer to use a credit card.

For the buyer or payer, there appear to be no remaining significant advantages. Even most merchants don't accept P2P currencies yet. The non-merchant has one significant reason to buy digital coins— the expectation of appreciation.

Valuation

The supporters of Bitcoin are projecting very high valuations ranging from $1000 to $1 billion per coin in the future, based on a limit of 21 million coins to ever be created, and a projection of percentage share of global transaction processing.

Notably 50% of Bitcoin's future money supply was issued to the founders and early adopters in first 4 years ended 2012, and by 2016, 75% of the 21 million coins will have been created. By 2020, 87.5%. By 2024, 93.75%. By 2028, 97%.

This accelerated phaseout in the creation of new coins is creating a mad "gold rush" to get in before it is too late. Even though at least 59% (but most likely 75 - 95% since that is only a lower bound that can be measured reliably) are holding long-term and not spending, the skyhigh valuations are based on the hope for adoption by merchants and then increased spending on goods and services in the future.

The 21 million Bitcoins are replacement goods with low barriers to entry and thus can be debased by market share. If competing P2P currencies issue many more coins, then the total finite demand for P2P coins has to be spread between the coins in all P2P currency competitors. However, this spread of market share is not uniform. Today, Bitcoins traded at $75 - $95 with 10.8 million coins issued and Litecoins traded at $0.58 - $0.68 with 2.5 million coins issued. Given real-time exchange between P2P currencies, there is nearly no barrier-to-entry, since merchants will want to accept as many no chargeback currencies as they can if value is rising or stable. Also Gresham's Law dictates that coins will higher issuance will drive coins with less issuance out-of-circulation towards a higher store-of-value. Valuations are also crucially based on market share of transaction processing to be captured in the future, which requires circulation of the currency. So it is quite naive to think that the 21 million coins of Bitcoins are immune to debasement by competitors, unless all competitors suck and have no desirable differences.

Much of the fervor is further amplified with a false sense of altruism under the delusion of being part of a momentus and historic creation of what supporters expect to be the first meritocratic money system— one which can't be debased by the power elite who control the strings on banks in the fiat fractional reserve systems society uses now.

Scaling

For Bitcoin to meet the expectation of investors in its digital coins, the transactions for goods and services has to scale up.

And here is where the hidden diabolical quality of Bitcoin (and Litecoin too) becomes too obvious when the technical details of the design are closely scruntinized by an expert programmer such as myself.

The processing of transactions in P2P currencies is provided by "mining" peers, who provide some Proof-of-Work to insure that double-spends can not exist in the single correct copy of the distributed database. These peers are computers connected to the internet and interacting in a protocol with the other "mining" peers.

To incentivize the "mining" peers to offer their hardware and electricity to this task, they are given the new digital coins created with each new block of transactions. Also they may be offered an optional transaction fee by some payers.

However, the rate of creation of new coins is halving every 4 years, and will eventually stop. Given the fervor the supporters have over non-debasement for meritocratic money system, the end of the creation of new coins is "non-negotiable".

If an attacker can muster 51% of the Proof-of-Work capacity of a P2P system, the attacker can take over the system. There are differences of opinion as to the degree of malicious behavior an attacker could do. However, one unarguable mathematical conclusion is that an attacker that had for example 60 to 90% of the Proof-of-Work capacity could process 60 to 90% of the transactions. If this attacker did not do any thing noticably malicious and did not charge a transaction fee, then virtually all customers would not find it necessary to offer a transaction fee, because over just 3 blocks of waiting time the 60 to 90% becomes 94 to 99.9% of all transactions.* If this was sustained for sufficient months or years when the production of new coins had ended (or declined significantly), then all the other miners would go bankrupt because their costs are not subsidized. Such attacker would then control virtually 100% of all transactions processed. Note this 60 - 90% could be built up over time, because offering free transactions to a percent of the market (when no new coins are being minted), drives some percent of the other miners bankrupt thus increasing the percent the attacker has— it is a snowball effect.

This was explained to some of the developers of Bitcoin who hang out at bitcoin.stackexchange.com, but they claimed it is only an opinion and not a fact. How can math be an opinion?

*First block, 60 to 90% + second block 60 x (100 - 60) to 90 x (100 - 90)% + third block 60 x (100 - 84) to 90 x (100 - 99).

Digital Kill Switch

There is an expectation that large retailers such as WalMart, Amazon, etc., will want to provide the "mining" peers at no transaction fee cost to the buyers, so as to gain a competitive advantage over other retailers.

But we see from the prior section that the incentive is very great to create a cartel that has control over all transactions. Once you have that cartel, you can eliminate those outside the cartel by delaying their transactions or charging transaction fees only to your competitors (billing the competitor, not deducting from the payer in the system). So this is just the credit card fees we have now all over again, except then they will also have a public global record of all transactions in the world (total end of privacy).

Then the government could easily collude with these cartels to turn off the transactions of political dissidents, free speech advocates, gun rights advocates, Ron Paul supporters, and any other classification of terrorist. With control over the processing and the merchants who depend on it, they can easily force an upgrade to the protocol which requires a SSN or other government tax ID to be attached to each transaction.

This is not a stretch at all. The design of Bitcoin and Litecoin encourages it— I go so far as to say they were designed for it given there are alternative designs (I proposed one) that don't have this diabolical possibility.

Having numerous competing P2P currencies does not escape from this diabolical threat, if all of them have the same diabolical design. A non-diabolical design would either have debasement that never ends and/or a minimum transaction fee.

I doubt one can create a non-diabolical P2P currency at any time in future, because the first-mover advantage will apply inspite of low barriers to entry. Because if the users already have Bitcoin and Litecoin, they may not see any compelling reason to add another, in spite of the diabolical quality which does not affect them directly (as a member of the majorty and not a dissidant or other threatened class).

Not Gold

The P2P currency fervor was further stoked by the illusion that they are somewhat like gold. Gold is a private hedge against government malfeasance, it can be traded privately with no public record. P2P currency ownership and transactions are stored in one public database that is never erased forever!

Gold's money supply is always increasing forever (we can mine it in outer space if we run out on earth) and the rate of nominal increase every year is also increasing. Bitcoin and Litecoin are geometrically decreasing the rate of increase of the money supply and will terminate production of new coins at 21 and 84 million respectively. Some people think this makes them even better than gold and silver.

Many people have the illusion these days that inflation is bad and deflation is good. Sorry to bust their bubble, but both transfer wealth to the power elite. The power elite have more savings relative to their expenses, thus they can switch their savings between investments which increase during both inflation and deflation. Whereas, the middle-class are hurt by inflation since they must spend more their income, and they are hurt by deflation, because their wages decline.

If distributed to the middle-class, some minimal debasement is beneficial to offset the guaranteed (government backed stopped) usury interest income the wealthy earn during deflation. I am not a socialist and I love free markets, but the fact is that money is a social collective institution and this is the reality of the math. Either you redistribute algorithmically with debasement and mining of new coins, or you redistribute with taxes and politics. I would much prefer the former.

It is possible to make a P2P currency that more closely emulates gold's money supply. And has the advantage that no one controls its rate of debasement and thus can't manipulate it to create false business cycles.

Edited April 1, 2013 by The Spaniard

[Traktion]

The above suggests that mining will become less profitable, because the number of new coins will decrease. Why would this matter, when the price is increasing at a proportional rate?

Additionally, the software defaults to paying a fee - 0.0005 Bitcoins. This is to stop spammers, rather than anything 'diabolical', but it will provide an incentive to validate transactions. Most large sites and/or software dealing with Bitcoins pay this fee as a show of support for the network; it is not resented. In addition, as the custom mining hardware gets more efficient, the cost of validating the transactions will drop.

To assert that miners will lose interest and people will refuse to pay a tiny fee isn't realistic, IMO. If you don't pay a fee, you risk the chance of delays, much like a second class stamp compared to a first.

As the Bitcoin network is currently the biggest super computer in the world - surpassing SETI - taking over 51% of this would require proportionate computing power. While it is theoretically possible, the amount of money required to create such a powerful network would be huge.

What benefit would there be of taking over the network? Hmm, well, if you wanted to keep doing it for months/years while changing nothing, just to drive out miners, then what would be the payout? Why would you waste such a huge amount of power/money on what is essentially a DoS (Denial of Service) attack?

Even if you did have endless power/money and an evil streak that wanted to crush Bitcoin at all costs (queue evil laugh), then you would have given everyone free transaction fees for a couple of years. As soon as they switched off their network, other nodes would just take over again. Where is the problem?

Ha, but what if they wanted to fork the chain with some new rules? Well, they could try that, but it would be immediately obvious that the network was under attack. Those with a vested interest in keeping hold of their Bitcoins would no doubt throw new resources at the problem, to out gun the attacker - everyone with a computer + Bitcoins would have an incentive to start validating transactions, as their Bitcoin wealth would depend on it. They have far more to lose than a would be attacker has to gain, after all.

So, maybe you end up with corporations trying to control the network? How is that different to what we have now? If the worst case is ending up with what we started with - until a new virtual currency becomes popular as a result - then again, where is the problem?

Still, I'm sure an 'expert programmer' knows much better than the modest programmer who is posting this.

[23rdian]

Yep he lost my interest when he declared himself that, surely bitcoin is the response to states taking the pee with the money supply.

Edited April 1, 2013 by 23rdian

[LetsGetReadyToTumble]

How does one buy bitcoins and from where?

[happy_renting]

[/b]

Some good points there.

I would suggest that Mises couldn't see how anything could become money, unless it was desirable in itself or applied via force. Clearly, a Bitcoin as a string of 1s and 0s isn't desirable in itself, but the network which surrounds them is. It is the distributed ledger which is useful, not the numbers which make up the entries in it.

A distributed ledger of transactions, which maintains individual privacy, is in itself valuable to people. This doesn't mean it has 'intrinsic' value (a horrible, illogical, phrase!), it just means it is useful. If something is useful, it will likely have value to people.

Ofc, that isn't to say that the stuff which numbers which are recorded by the ledger are of no interest - they are the outward representation of the ledger to the individual; it is what the average individual thinks Bitcoin is. However, you can't just plug in different numbers into the ledger, so the Bitcoins are the only 'tokens' which can be attached to the ledger, so are along for the ride too (like it or not!).

Maybe someone will come up with a better way of seeding the initial tokens, which some will consider fairer. However, absent of threatening people to use said tokens, there has to be some sort of incentive. Bitcoin's success so far has been the promise of gaining wealth, if the system becomes established - the more established it becomes, the more wealthy the Bitcoin holders become.

Does that mean that hoarding will kill Bitcoin? I doubt it. If too many people hoard, it will lose utility value, then people will sell them - liquidity returns in the process.

Bitcoins, which have a fixed, known, finite supply, is global, has no intrinisic utility, cannot be printed out of existence, cannot be counterfeited, can flow freely, and are in a 'market' where everyone knows the current price, may prove to be the definitive test of von Mises' and other theories.

[Bloo Loo]

The above suggests that mining will become less profitable, because the number of new coins will decrease. Why would this matter, when the price is increasing at a proportional rate?

Additionally, the software defaults to paying a fee - 0.0005 Bitcoins. This is to stop spammers, rather than anything 'diabolical', but it will provide an incentive to validate transactions. Most large sites and/or software dealing with Bitcoins pay this fee as a show of support for the network; it is not resented. In addition, as the custom mining hardware gets more efficient, the cost of validating the transactions will drop.

To assert that miners will lose interest and people will refuse to pay a tiny fee isn't realistic, IMO. If you don't pay a fee, you risk the chance of delays, much like a second class stamp compared to a first.

As the Bitcoin network is currently the biggest super computer in the world - surpassing SETI - taking over 51% of this would require proportionate computing power. While it is theoretically possible, the amount of money required to create such a powerful network would be huge.

What benefit would there be of taking over the network? Hmm, well, if you wanted to keep doing it for months/years while changing nothing, just to drive out miners, then what would be the payout? Why would you waste such a huge amount of power/money on what is essentially a DoS (Denial of Service) attack?

Even if you did have endless power/money and an evil streak that wanted to crush Bitcoin at all costs (queue evil laugh), then you would have given everyone free transaction fees for a couple of years. As soon as they switched off their network, other nodes would just take over again. Where is the problem?

Ha, but what if they wanted to fork the chain with some new rules? Well, they could try that, but it would be immediately obvious that the network was under attack. Those with a vested interest in keeping hold of their Bitcoins would no doubt throw new resources at the problem, to out gun the attacker - everyone with a computer + Bitcoins would have an incentive to start validating transactions, as their Bitcoin wealth would depend on it. They have far more to lose than a would be attacker has to gain, after all.

So, maybe you end up with corporations trying to control the network? How is that different to what we have now? If the worst case is ending up with what we started with - until a new virtual currency becomes popular as a result - then again, where is the problem?

Still, I'm sure an 'expert programmer' knows much better than the modest programmer who is posting this.

who is to say the "founders" dont already have that 51%?

It seems the main value touted by all bitcoiners is the capital appreciation of their product.

As others have pointed out, probably worth a punt.

But a dead internet will kill the thing deader than a dead thing in Hades itself. And cyber attacks are the news of the day...

[Traktion]

who is to say the "founders" dont already have that 51%?

It seems the main value touted by all bitcoiners is the capital appreciation of their product.

As others have pointed out, probably worth a punt.

But a dead internet will kill the thing deader than a dead thing in Hades itself. And cyber attacks are the news of the day...

I suppose they could have - they would certainly have the incentive to crank up the mining. That would be a rather virtuous result though, no? I mean, if those who benefited most have the biggest interest in keeping the currency going as planned, that's no bad thing.

However, they could attempt to fork the software at some point and would likely have the processing power to pull it off. I suspect it would mean a pummelling in the value of Bitcoins, as they sell on the back of a clearly defined and largely unchanging rule set.

I'm not suggesting that Bitcoins are perfect. I'm largely interested in them being the thin end of a wedge of free market currencies. It just seems that there is a lot of FUD floating about, which I feel compelled to comment on.

For the time being, Bitcoins needs to be good enough to offer an alternative to state fiat money and commodity money. IMO, it ticks that box. There is time enough for improvements/alternatives to come along later.

[Errol]

How does one buy bitcoins and from where?

I was wondering this as well. It seems rather complicated.

[camem']

I was wondering this as well. It seems rather complicated.

easiest way from the UK for up to £250 a time is pingit, with blockchain who have been with bitcoin since it started and are very good technically (no idea about customer service since it just works). Requires a smartphone and a UK bank account. If you don't want to hold them in the cloud transfer them to another wallet once you've bought them.

Blockchain pingit instructions

They will go up to £2000 per 7 days once you're set up. To go beyond that you'd have to get an mtgox account (the large exchange doing best at regulation), verify yourself by scanning some id and sending to them, and use a uk bank account that can do SEPA (europe) transfers (most of the high street ones) so you can transfer to mtgox's european account.

The UK is dragging its heels here relative to US, Japan, France etc which is why it's harder - no-ones successfully got a regulated exchange set up in the UK yet, though a few must be trying. HMRC have said it's ok to make money buying and selling bitcoins as long as you pay the appropriate capital gains tax

PS once you've got some and understand how easy it is to make payments and how little risk of ID fraud there is compared to having a standard bank account, you hope it gives the banking industry a kick in the right direction...

Edited April 2, 2013 by camem'

[miggy]

I'm afraid BlockChain has blocked off all UK transactions. In fact, it looks hard to get money into Bitcoin at all from the UK at present (and certainly at a sensible rate including charges).

What's the best place to get money out, too?

And what's the best exchange for UK users (excluding mtgox)?

BitBargain is worth a look maybe but I'm travelling in NZ at the moment and it simply won't let me do anything from this IP

[betterToDo]

who is to say the "founders" dont already have that 51%?

Proof of work, the concept that actually makes bitcoin function, makes this impossible.

[betterToDo]

I'm afraid BlockChain has blocked off all UK transactions. In fact, it looks hard to get money into Bitcoin at all from the UK at present (and certainly at a sensible rate including charges).

What's the best place to get money out, too?

And what's the best exchange for UK users (excluding mtgox)?

BitBargain is worth a look maybe but I'm travelling in NZ at the moment and it simply won't let me do anything from this IP

Facing similar issue myself yesterday, I'm currently looking into OKPay as a means of getting to MTGox.

[Bloo Loo]

regional ip's blocked?...no dealers in the UK?..revenue on the case as far as CGT is concerned?

sounds unstoppable.

just call be a bit cynical, but the two above posters are trolling...right?

[justthisbloke]

I think my original theory that TPTB have clamped down on blockchain.info was correct. As soon as these exchanges get big in the UK they cease their service.

Despite all these hitches, we're up to about 75 GNP.

So CGT may well be an issue for some. Certainly I've taken action to defuse it. CGT covers all gains as far as I know - unless someone can tell me that btc is exempt.

[Traktion]

Facing similar issue myself yesterday, I'm currently looking into OKPay as a means of getting to MTGox.

I've used MtGox in the past via bank wire. It cost about £50 in total, including MtGox charges, IIRC.

[Traktion]

regional ip's blocked?...no dealers in the UK?..revenue on the case as far as CGT is concerned?

sounds unstoppable.

just call be a bit cynical, but the two above posters are trolling...right?

Well, there is a history of exchanges having their UK bank accounts shut down. It happened to MtGox, Intersango to name two. If it has now happened to Blockchain.info, I wouldn't be all that surprised.

TBH, I thought Blockchain.info would have been ok though, as they were selling Bitcoins, rather than providing a trading platform (where they hold your money first). The latter would likely come under regulation, but the former seems fine to me (you're just buying stuff).

That said, blockchain.info still have Sofort on my account. I've never tried using that before, so I don't know if it works well or not. However, considering you barely get a Bitcoin for £100 now, it's all getting a bit too frothy for me just now - they were a third of that when you started this thread 3 weeks ago. Notwithstanding the Cyprus situation, not much else warrants such a steep rise, other than speculation.

[evetsm]

Well, there is a history of exchanges having their UK bank accounts shut down. It happened to MtGox, Intersango to name two. If it has now happened to Blockchain.info, I wouldn't be all that surprised.

TBH, I thought Blockchain.info would have been ok though, as they were selling Bitcoins, rather than providing a trading platform (where they hold your money first). The latter would likely come under regulation, but the former seems fine to me (you're just buying stuff).

That said, blockchain.info still have Sofort on my account. I've never tried using that before, so I don't know if it works well or not. However, considering you barely get a Bitcoin for £100 now, it's all getting a bit too frothy for me just now - they were a third of that when you started this thread 3 weeks ago. Notwithstanding the Cyprus situation, not much else warrants such a steep rise, other than speculation.

Not even $600 trillion of unsettleable derivatives contracts and a banking system that by some accounts is still hopelessly insolvent, to the point that they have drafted actions to come after deposits ?

[Traktion]

Not even $600 trillion of unsettleable derivatives contracts and a banking system that by some accounts is still hopelessly insolvent, to the point that they have drafted actions to come after deposits ?

True!

However, unless you think Cyprus is the trigger for all of that unwinding, I'm not sure whether any of that has changed over the last 3 weeks?

In the longer term I can see great things from Bitcoin, but this recent spike seems a bit much. What do I know though? I'm no trader, for sure!

[evetsm]

True!

However, unless you think Cyprus is the trigger for all of that unwinding, I'm not sure whether any of that has changed over the last 3 weeks?

In the longer term I can see great things from Bitcoin, but this recent spike seems a bit much. What do I know though? I'm no trader, for sure!

I think Cyprus changed everything. It suddenly dawned on people that fiat is unsafe. Also, this is a take up rise off a base of zero. A little like the internet itself, twenty years ago practically nobody used it, now everyone does. That was no bubble, it was a paradigm change.

[Traktion]

I think Cyprus changed everything. It suddenly dawned on people that fiat is unsafe. Also, this is a take up rise off a base of zero. A little like the internet itself, twenty years ago practically nobody used it, now everyone does. That was no bubble, it was a paradigm change.

In the long term, I agree. I'm just not sure whether this last 3 weeks of activity is reflecting that or not. Even with events in Cyprus, it seems a bit much. I could be completely wrong though!

Regardless, having Bitcoin as another option to the banking/monetary system is welcomed. Competition in this area is badly needed.

[rxe]

CGT is an interesting question. Just like any other currency speculation, you would pay CGT when you realised the profit on the transaction. So if you buy 10 bitcoins, and they appreciate, you will pay CGT only when you sell them and take the profit. If you bought any sold between sterling and bitcoin, this would be the end of it. The problem for the Revenue is the leakage that will be inevitable in a deflating system. So you buy some bitcoins, and then exchange them for goods and services. No CGT to pay (unless you make a business of trading the goods), but you are actually making huge speculative gains that are untaxed. You could do this via USD or EUR as well, but the opportunities are not as clear (which is why I have bought two BC – if the predictions are correct, I’m giving up work in 2 years….ha ha).

My view is that BC will fail legally for precisely this reason. It is incompatible with the reasonable demands of government for traceability of transactions (thwarting criminals) and also incompatible with their less reasonable demands to tax the hell out of everything. The simple way for them to address this is to prevent companies from accepting it as payment – if you can’t buy shit with it, then it is worthless as it has no intrinsic value. At the moment, we are in bubble phase – there is loads of fiat flowing in, so the fact that nothing is priced in BC isn’t a problem – you buy a BC, it goes up, you have a fiat based exit. When it stops going up, then there is no other exit – you have to convert back to fiat to get out (or buy a shit load of dope on the Silk Road). The falls will be very violent indeed if the governments close the exits, which they can easily do.

[Ted]

Serious question here....

If you buy gold, and it rises 2000%, you then manage to find someone to sell a house for the gold , are you liable to pay CGT on the profit made? Or has any profit been made , since it is just an exchange?

Is it just an issue when it is converted to stirling ?