Bitcoin implodes and the banking crisis

The easiest way to invest in the growth of Bitcoin & the Crypto Currency Sector. — BitCoin Capital

Max Keiser lost all credibility when a few weeks ago he claimed rouble a strong currency. You could almost see Vladimir Putin pulling the strings.

Ностальжи / Nostalgia

This latest Keiser Report is another example of nonsense being peddled, this time on bitcoin.

Skirting over in this discussion that bitcoin has run into technical problems, mere hints of the intercine warfare between core bitcoin developers. And that is only the tip of the iceberg of the problems facing bitcoin.

Bitcoin has failed miserably as a currency.  It fails to meet the basic criteria of a currency:

• store of value
• unit of exchange

Bitcoin is highly volatile, it lacks utility. Where is the baker where I can use bitcoin to buy a loaf of bread?

Bitcoin has been hijacked by spivs and parasites, all out to make a fast buck. One of who was a guest on the programme.  And who was this guest? Why none other than Simon Dixon, a vulture capitalist, who co-manages a vulture  capital fund trying to make  a fast buck out of bitcoin, co-manages with none other than Max Keiser himself. If, and a very big if, the investment goes well, investors are paid, please do not laugh, in bitcoin.

We offer a unique model whereby we invest one third of all funds in mining (The process used to create new coins) that is used exclusively to pay daily dividends to investors (in Bitcoin) for as long as the mining process is profitable.

This is a great way to accumulate Bitcoins without having to get deep into the geeky part of the process.

We mine a portfolio of coins and always look for the most profitable opportunity through our algorithm. Eventually the mining process can become unprofitable, so we utilise the latest technology with mining rigs in Iceland that optimise every penny of profit and we pay the coins generated through mining out to investors until the process is no longer profitable where the costs of running the rigs exceeds the value of the coins produced.

Our goal is that if the market conditions are right, investors receive a chunk of their investment back through Bitcoin, unlike any other investment fund.

Located in Iceland as one of the few places energy costs are low enough to make bitcoin mining feasible.

Max Keiser remarkably coy about the fact he is a bitcoin millionaire, indeed a deafening silence.

And where is BitCoin Capital based? Er, the tax dodging Cayman Islands.

Invest in a Ponzi scheme, attract more investors to inflate the price, and then you get a return, only the return is in the very thing you are investing.

You could not make this up if you tried.

Someone exposing that bitcoin is heading towards a brick wall due to technical problems, is not going to go down too well with a vulture capital fund where two of the people on the programme, including one of the presenters, have  a direct vested interest.

Yes, we should be very concerned by the activity of all these players, especially the criminal banks trying to grab a piece of the action.

The New York Times article  ridiculed, was actually quite a good article on the current problems with bitcoin. That Mike Kearn working for R3, irrelevant other than it indirectly highlights one of the problems with everyone associated with bitcoin, all out to line their own pockets.

This is not the mindset to be expected of people working on an Open Source, Open Protocol project located in the collaborative commons.

This is not the mindset of Open Software, Open Protocols, where you freely contribute your time to the collaborative commons, in order that all can benefit and in turn draw from the collaborative commons.

The mindset of the bitcoin developers is the opposite to that in The GNU Manifesto.

Software illustrates the dichotomy of the free flow of information. In one corner of the ring Bill Gates, who argues:

most of you steal your software. Hardware must be paid for, but software is something to share. Who cares if the people who worked on it get paid?

In the opposing corner of the ring Richard Stallman, who argues:

If anything deserves a reward, it is social contribution. Creativity can be a social contribution, but only in so far as society is free to use the results. If programmers deserve to be rewarded for creating innovative programs, by the same token they deserve to be punished if they restrict the use of these programs. … Extracting money from users of a program by restricting their use of it is destructive because the restrictions reduce the amount and the ways that the program can be used. This reduces the amount of wealth that humanity derives from the program. When there is a deliberate choice to restrict, the harmful consequences are deliberate destruction.

Bill Gates was arguing for commercial software, Richard Stallman Open Source software.

What Richard Stallman saw, was if knowledge freely flows, we all benefit. We contributive freely to the collaborative commons, and in turn draw from the collaborative commons.

Opens Source software, for example Apache, runs the internet, powerful supercomputers run on Open Source software Linux.

Bitcoin was developed as Open Source, Open Protocol. It has failed as a currency, but it has also failed because the Bitcoin developers have failed to comprehend the basic premise that Richard Stallman outlined in The GNU Manifesto. They are funded by vulture capitalists, parasitic start ups, all who are looking for means to profit from Bitcoin.

Bitcoin was an interesting proof of concept, nothing more. Coherent noise.

The only use of bitcoin is as a quick and dirty means to transfer out of a currency, across a border.

There has been no re-branding of bitcoin as the blockchain. The blockchain is seen as useful in its own right as a means of recording transactions in digital assets, open, secure and transparent.

Mycelia to track music uses the blockchain.

What relevance the number of transactions of bitcoin, best performing currency? All this tells us is that it attracts the interests of a lot of spivs and speculators out to make a fast buck.

How many of these transactions were using bitcoin as a currency to buy goods and services?

Bitcoin may work as a vehicle for the nefarious activities of spivs and speculators, as a currency it has been a complete and utter failure.

 

As a currency, the Brixton Pound is more of a success story than bitcoin. But then the Brixton Pound has not attracted the activities of spivs and speculators out to make a fast buck. It is used as a local currency, to buy goods and services within the local Brixton economy.

Bitcoin fails the basic requirements of a  currency:

• store of value
• unit of exchange

Yes, there is a problem with the banks, lax regulation, they should have been broken up, casino banking split from retail banking, but that is an entirely separate issue, a side show and a distraction from the problems facing bitcoin.

In PostCapitalism, Paul Mason exposes the criminal activities of the bankers. He also shows that all the conditions are in place for yet another banking crisis, only this time there is no money to bail out the banks, and if there was there would be riots in the streets.

It is a moot point, that with the exception of Iceland, no bankers have gone to prison.

Clearly the banks have woken up to the fact that a functioning Bitcoin 2.0 would pose a real threat.  The nearest we have to Bitcoin 2.0 is faircoin.

• Sacred Economics
• An alternative Greek currency
• Why has Bitcoin failed?
• Is Bitcoin dead?
• Bitcoin: The Emperor’s New Clothes
• Bitcoin Dead? Not the Part that Matters

Is Bitcoin dead?

bitcoins

Has the Bitcoin experiment run its course?

According to Mike Hearn, who claims to be one of the founding developers, the answer is yes.

He cites technical problems, the block is too small, transactions take too long, and no one can agree on what can be do to resolve these issues.

Rumours abound that Bitcoin Foundation is in trouble, several million dollars reported unaccountable. And why were they spending money lobbying?

Mike Hearn also bangs on about investment. What investment? Investment in time for development, investment in the computers to run the currency, that is investment, investment in bitcoins as a tradable commodity  is not investment, that is speculation, one of the root causes of the problems with bitcoin.

Mike Hearn fails to see the wood for the trees, and does not address the fundamentals that are wrong.

For a currency to be viable as a currency, it has to meet two criteria:

• store of value
• unit of exchange

Bitcoin fails miserable on both counts.  It is extremely volatile due to the activities of spivs and speculators and you will be hard pressed to find  anywhere to spend bitcoins.

If a euro can buy a loaf of bread today, I need to be able to buy a loaf of bread tomorrow, the next day, the next week, the next month. I also need a baker who accepts my euro.

Bitcoin has grown too fast. Parasitical add ons have jumped onto the Bitcoin bandwagon, spivs, speculators and other low life have crawled out of the woodwork.

Can we  trust any of the exchanges, a bitcoin wallet? How do I know a bitcoin wallet does not have a hole in the bottom out of which my bitcoins fall?

Consider one  aspect of Bitcoin, public key cryptography. To implement, need secure public key encryption algorithms. Then have to implement with code. Checking the code is ok on paper, is a necessary but not sufficient condition. Does it self-check? How is it implemented in the real world, on a computer? It is executed in memory, that memory maybe is swapped out onto disc. What steps are taken to wipe all those traces?

Bitcoin, by design, may self-regulate. This is not true of any of the add ons. All need government regulation, as would require for any other financial services or the banking sector.

Early adopters were quite literally able to mint millions (mine in the Bitcoin jargon). They could do so with relatively little computing power, a laptop, a games console, maybe even a smartphone (though a smartphones then lacked the power of a smartphone today).

Today, need massive computing power, restricted to the rich. Mike Hearn refers to two people in China. Maybe it would be better to refer to two entities. If they have this amount of computing power, maybe government agencies.

Large computing power has large energy requirements.

This skews Bitcoin to benefit the rich, is at odds with the early egalitarian claims for Bitcoin.

It is not as some have claimed, cannot have a trusted system. Bitcoin is a trusted system, the add ons are not as outside of the blockchain and cannot be trusted.

Gold is of value because it is easily convertible to dollars. Not as people falsely assume, because dollars can easily be converted to gold. Every tried lugging around an ingot of gold, buying a loaf of bread by shaving off a few slivers?

A currency can be whatever we decide. It is society that determines its value and utility.

On a remote Pacific Island are large stone rings with holes through the middle called yaps. Some lie at the bottom of the sea. Everyone knows their value, who owns them. The stones never move, only the ownership changes, the accounting is maintained orally.

Bitcoin was an interesting proof of concept, but little more. It is useless as a currency. The best that can be said of Bitcoin is that it functions as  a quick and dirty method to transfer out of a currency, across borders and into another currency.  Its hopes of becoming an internet currency have not succeeded.

Faircoin, which can be seen as BitCoin 2.0, attempts to address some of the problems associated with bitcoin.

• Sacred Economics
• The resolution of the Bitcoin experiment

Bitcoin in Uganda

As a currency, bitcoin is an unmitigated failure, it is extremely volatile, and you will be hard fetched to to be able to spend it.

Where though bitcoin does come into its own, is as a quick and dirty means of  transferring between currencies, across borders.

The banking crisis in Cyprus in 2013 created panic, the banks shut their doors for several days, the EU stole money from anyone with over 100,000 euros in their bank account, capital controls were introduced. A trial run for Greece two years later.  Bitcoin offered a solution. Even the University of Nicosia jumped on the bandwagon,  accepting payment of fees in bitcoin and offering a MSc in Digital Currency.

For migrant workers, sending money home is an expensive business.

Every year, migrant workers from Uganda send $700 million back home. Western Union  and MoneyGram cream off 10-20% in fees. But it is not only the fees, it may necessitate half a day off work to journey to a Western Union Office, for the recipient, it could mean a day round trip to a Western Union Office.

Bitcoin offers a reliable and fast alternative. Not only that, volatile as bitcoin is, it is a better store of value than the local currency in Uganda.

Everyone has a smartphone, not everyone has a bank account.

Bitcoin, or better still faircoin, enables countries like Uganda, to completely bypass the banking system. It would only be one step, to go shopping with your smartphone, transfer money from one bitcoin or faircoin wallet to another.

Faircoin, which can be seen as BitCoin 2.0, attempts to address some of the problems associated with bitcoin.

• Bitcoins in Argentina

Masters degree in Bitcoin?

In 2008 we had the Great Banking Crisis.  Lehman Brothers went bust, as did several other banks worldwide. Trillions of dollars of confected money was spent propping up the criminal banking sector.

In 2008, bitcoin.org was registered, a white paper on Bitcoin published, Bitcoin: A Peer-to-Peer Electronic Cash System, the first bitcoins were minted (or ‘mined’ to use the bitcoin terminology).

Bitcoin is a digital currency, a crypto-currency, accounts are kept in cryptographic form in a public ledger known as a block, to transfer amounts from Alice to Bob, have to sign with a cryptographic key. This verifies that it is from Alice. The ledger determines, does Alice have the funds to pay Bob. This is recorded, of which many have a copy, the block in the public domain, many similar entries form the block, a crypto-hash of the block, prevents any single entry being changed, the hash is stored in the next block, where it cannot be changed, the blocks linked together form the blockchain.

In the street, I can hand over a euro. I could send an image of a euro.

Alice could send her payment multiple times, the blockchain prevents this.

in 2013 a banking crisis in Cyprus. The doors of the banks were closed for several days.  Any funds over 100,000 euros stolen by the EU. A trial run for Greece. Politicians in Cyprus simply cowed to the EU, did not even put up a token fight. Capital controls introduced.  Any thought Cyprus had of becoming an international finance centre destroyed overnight.

For Cypriots this was the worst crisis since Turkey invaded in 1974. Several months later, they were still shell-shocked. Turkey is still there, illegally occupying the north of the island.

Panic, how to transfer money from euros, how to remove money from Cyprus.

Into the maelstrom, bitcoin came of age, at least for quick and dirty transfer of funds. The volatility of bitcoin, untrustworthy nature of the exchanges, meant using bitcoin was risky, but what was riskier than leaving funds in Cyprus to be stolen on a whim by the EU?

The algorithms that define the blockchain are believed to be secure. Implementation is a different matter. The add on services, conversion between bitcoin, either for goods and services, between other currencies, a different matter.

As a currency, bitcoin is too volatile and unstable to have any utility.

Cyprus, for whatever reason, attracts third rate universities, they open an office, stick Cyprus on the end of their name, and they are open for business.

University of Nicosia saw an opportunity, accept fees in bitcoins, promote a MSc program in Digital Currency. They even suggested Cyprus be an international finance centre.

It is laughable. All there is to know about bitcoin could be taught in an hour, throw in another hour for public-key encryption, if really wished to pad it out, a semester.

Few working in security understand the public key concept, or even that there is a  concept. If they do, they think it has solved the key distribution problem. It has not, it has replaced it with a different problem. If you fail to grasp that, and how to solve, no matter how good the encryption algorithms, the system will not be secure.

Their faq on bitcoin, is cut and paste from bitcoin.org  (not even acknowledged or cited plagiarism writ large), the payment page is not even via a secure link, and the other links do not even work.

They are also offering an introductory  free course, Introduction to Digital Currencies. Maybe a few people could enrol, provide feedback.

Bitcoin is not going to replace the dollar or the euro. It is a parallel, alternative currency with some uses.

To suggest Cyprus as an international finance centre, would be hard pushed to find a country with less credibility for finance.

Cyprus needs to divest away from its failing tourist industry, but to suggest it could be a world finance centre in the light of its 2013 banking crisis is laughable.

Bitcoin attracts spivs. A get rich quick scam.  A commodity to be speculated in and against, not as originally envisaged, a convenient digital currency that does not need a banker. Spivs are also drawn as parasites, offering add on services.

In the West, most people have bank accounts. Not true outside the West, not true for women in Muslim societies. Bitcoin offers an alternative payment method. For migrant workers, a superior method of sending money home than Western Union.

I could write an article, it be published anywhere in the world, be paid in the local currency, but the cost of transferring small sums of money from one currency to another, makes it futile.

An investment in The Robin Hood Hedge Fund, 50 euros to join, 50 euros to invest, has associated costs, even if in the eurozone, unless in Finland.

Payment could be made through PayPal, that is how bandcamp functions. But where to spend, I guess I could buy some music on bandcamp.

In Kenya, they have their own mobile currency, M-Pesa, it is transferred via sms messages. More people have  a phone than a bank account.

I could accept payment in bitcoin, or better still  faircoin.

For University of Nicosia to accept payment by bitcoin, is a better option for most of its overseas students.

Stripped of the hype, bitcoin is a niche, little more. Speculation and volatility has rendered useless as a  currency. The cost of mining bitcoins, puts it in the realms of the rich, the energy required to mine, makes it environmentally unacceptable.

Faircoin, which can be seen as BitCoin 2.0, attempts to address some of the problems associated with bitcoin.

The blockchain is simply a means of securely recording the transfer of a digital asset. It does not have to be a currency.

Mycelia is a proposal for using the blockchain to monitor and pay for the distribution of music. A prototype uses Tiny Human to test the concept.

Efforts in Cyprus would be better employed in developing alternative currencies, or use faircoin, in developing local currencies, to de-couple from the euro.  To follow the example of Greece for an alternative currency.

How Bitcoin Works

Money is a symbol, visualised as a token, a coin, a piece of paper,  something we all agree on as to its intrinsic value. Without that agreement, it cannot function as viable currency.

Bitcoin is a crypto-currency, numbers in a computer.

There are several underlying problems with bitcoin.

For a currency to be viable it has to be widely accepted and stable. Bitcoin is neither.

The amount of energy required to generate or mine future bitcoins is not good for the planet, ie there is a real environmental cost associated with bitcoin.

Faircoin, which can be seen as BitCoin 2.0, attempts to address some of the problems associated with bitcoin.

We live in a world where we are connected instantaneously to everyone else in the world from a device we hold in our hand. We can communicate by voice or video, we can send files, pictures, music, books. The marginal cost of doing so is near zero. The marginal cost of the things we are distributing, sharing, is near zero.

Why then do we have antiquated methods of dealing with money, of paying for things, when we have a device in our hands that can do all of these things at zero marginal cost?. At street level, use cash. Within the internet us a crypto-currency. We do not need banks.

$500 billion is sent home by migrant workers. Typically they send these remittances home by walking into a Western Union Office, showing their ID, paying a fee of somewhere between seven to ten percent, the recipient walks into a similar office, shows an ID and recipient code, and picks up the cash. A very antiquated system.

Cheque clearing, was, maybe still is, even more antiquated. Cheques go the the head office, they are then literally couriered across to the head office of another bank.

If I wish to invest in the Robin Hood Hedge Fund, it costs 50 euros for membership, plus 50 euros each share, If payment goes across national boundaries, there are additional costs associated with each Central Bank.

If you own bitcoin, you can via the network, transfer to other accounts at zero marginal cost.

The internet runs on Open Software and Open Standards. The bitcoin blockchain is built on Open Software and Open Standards.

If I walk in a bank, and transfer money from one account to another, I do not have to take money out, then pay it back in (though I may wish to do that in the Cayman islands if I am money laundering and do not wish my transfer to be easily traced). What usually happens, the money is directly transferred from one account to another, in reality the sum is debited from one account and added to another account. But it means I have to trust the bank as a trusted third party.

The bitcoin blockchain allows the transfer of digital assets from one entity to another in a verifiable way (these assets may be viewed as a crypto-currency but do not have to be). A message is sent to the network, that enables the transfer of these assets from one account to another. The blockchain is a tamper proof ledger in the public domain. The asset transferred in the case of bitcoin, is a currency, but it does not have to be.

The blockchain has uses beyond bitcoin.  Singer-songwriter Imogen Heap has proposed Mycelia, a blockchain for tracking music. She has released Tiny Human to test out the concept.

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• An alternative Greek currency
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BitCoin

bitcoin Mr Nakamoto

If the banks can create money out of nothing, backed by nothing, then why not create an internet currency out of nothing, backed by nothing?

BitCoin is the world’s fastest growing currency, unregulated, backed by nothing. It could also be yet another Ponzi scheme.

A currency is only worth what people think it is worth, that is its only value, as apart from other people accepting it, and placing the same value in exchange as you do, it has no other value as it has no intrinsic utilitarian value. That is why in Germany, when their currency collapsed, we saw folks wheeling around barrows full of money, and why the Germans to this day are paranoid about their currency.

And you cannot trust the banks, which are little more than criminal organisations. Ask bank customers in UK who have been caught up in miss-selling scams. Or ask bank customers in Cyprus with over 100,000 euros in the bank.

Bitcoin is a decentralized digital currency based on cryptography and an open-source peer-to-peer internet protocol. It was introduced by a pseudonymous developer named Satoshi Nakamoto in 2009.

Internationally, bitcoins can be exchanged by personal computer directly through a wallet file or a website without an intermediate financial institution. In trade, one bitcoin is subdivided into 100 million smaller units called satoshis, defined by eight decimal places.

Bitcoin does not operate like typical currencies: it has no central bank and no central organization confirms nor controls its transactions. Instead, bitcoin relies on a peer-to-peer network of servers to broadcast and confirm transactions. The money supply is automated by a set algorithm implemented by all participating servers.

Currently, 25 bitcoins are generated every 10 minutes. This will be halved to 12.5 BitCoins within the year 2017 and halved continuously every 4 years after until a hard-limit of 21 million bitcoins is reached within the year 2140. As of March 2013 over 10.5 million of the total 21 million BitCoins had been created; the current total number created is available on-line. In November 2012, half of the total supply was generated, and by end of 2016, three-quarters will have been generated. By 2140, all bitcoins will have been generated with the last one consisting of fractional parts. To ensure this granularity of the money supply, clients can divide each BitCoin unit down to eight decimal places (a total of 2.1 × 1015 or 2.1 quadrillion units).

If there is no Central Bank, then who is generating BitCoins? The network itself is generating BitCoins, and because there is an upper limit, there is a finite supply of BitCoins.

In 2011, economist Paul Krugman reviewed bitcoin saying that

[bitcoin] has fluctuated sharply, but overall it has soared. So buying into [bitcoin] has, at least so far, been a good investment. But does that make the experiment a success? Um, no. What we want from a monetary system isn’t to make people holding money rich; we want it to facilitate transactions and make the economy as a whole rich. And that’s not at all what is happening in [bitcoin]

As of March 2013, the monetary base of bitcoin is valued at over $1 billion. The large fluctuation in the dollar value of a bitcoin has evoked criticism of bitcoin’s economic suitability.

Since January 2013, bitcoin has trebled in value. This seems mainly due to flood of investors out of the euro. With the Cyprus experience of money being stolen from savings held in Cypriot banks, no deposits in euros in Greece, Italy and Spain can be seen as safe.

One of the problems with the BitCoin at the moment, is that it is being seen as an investment vehicle not as a currency, and speculators have jumped on the bandwagon.

Why should we trust BitCoin? The main reason we can trust BitCoin is that the people behind it and its supporters are anarchists and hackers who are determined to see it succeed. Its main threat being a digital attack, not wise when the word’s best hackers will be on your case.

When the Bank of England prints money (fancy name: quantitative easing) it passes money to the banks, the bankers get richer, wealth is concentrated in fewer and fewer hands, the poor get poorer.

The people behind BitCoin live in a squat in London (though is disputed and dismissed as hype, part of the mystique surrounding bitcoin).

Cash is anonymous. BitCoin is anonymous.

I can communicate with B on the net. A string of digits flows back and forth. That is all BitCoin is, a string of encrypted digits, encrypted digits that have mutual value to recipient and sender.

Physical bitcoins are available, with an internal encryption key to the digital bitcoins.

Bitcoin Foundation exists for all things bitcoin.

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