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

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.

• FairCoin
• Sacred Economics
• What is SolarCoin?
• An alternative Greek currency
• What happens to democracy in a cashless society?

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.

• Bitcoin: the fastest growing currency in the world – video
• Bitcoins: Could virtual cash replace money?
• Bitcoin popularity ‘boosted by euro’
• The bitcoin boom
• Bitcoin Prices Blast Through $100, Driving Speculators Wild
• Want JP Morgan to crash? Buy silver

Bailgate Pound

“The essence of the contemporary monetary system is creation of money, out of nothing, by private banks often foolish lending.” — Martin Wolf

The day before Christmas Eve it was a freezing cold day in Lincoln, the County town of Lincolnshire. It must have been cold as the River Witham was frozen, something I had never seen before. OK covered in ice. I have seen the Brayford solid with ice, but never ice on the river.

I was cold, chilled to the bone. I decided to walk up The Strait and Steep Hill to Lincoln Cathedral for no other reason than to keep warm. Though having said that it is a worthwhile walk, away from the ghastly Clone Town of the city centre to interesting shops and an attractive environment.

On my climb up, with a stop at Readers Rest where I picked up a copy of New Covent Garden Soup Company’s Book of Soups, I noticed many of the shops on my climb up and in Bailgate when I got to the top had notices in the window saying they accepted Bailgate vouchers. What were these I thought, has Bailgate set up a local currency, or are they as it says merely vouchers something like Book Tokens?

On my way down I looked in the Jews House Restaurant and had a chat with a very helpful and friendly Samantha. She explained no it was a voucher not a local currency. She had no information and suggested I visited the Tourist Information Centre as they should have some information. But as that was at the top of the hill, I did not fancy climbing back up again, but said I would look in another day.

The difference between a voucher and a local currency is that a voucher is spent once, whereas a local currency, ie a genuine Bailgate Pound, circulates within a local economy, it stops money leaking out of the local economy.

You spend it in the butcher, he spends it the baker and so forth.

I suggested that they take the next step and establish a local currency. I suggested she looked at the Totnes Pound which has been a huge success since its launch by Transition Town Totnes. It is one of many local currencies which have been introduced.

If you spend one pound sterling in a High Street store or a superstore, that pound goes straight out of the local economy, its buying power lost to the local economy. A local pound may only be spent within the local economy, and thus has a multiplier effect, which benefits the local economy.

For example. I spend ten Bailgate Pounds in the local butcher. He pops across the road to the florist and spends it on some flowers. They walk along to the deli and spend it on some cheese. They go down to the butcher and spend it again. The ten Bailgate Pounds I originally spent have not only benefited the butcher, but several other retailers too by circulating within the local economy.

Other local currencies are the Lewes Pound, Stroud Pound and Brixton Pound.

The Bailgate Pound was a local initiative by Bailgate traders, Lincoln Business Improvement Group, The Bailgate Guild and the Lincolnshire Echo following the collapse of the Lincoln Christmas Market due to adverse weather conditions. Having seen its success let us hope they now go that one step further and introduce a genuine local currency.

The support is there, critical mass has been reached, awareness raised, the Bailgate Pound should be turned into a fully fledged local currency. It is important this is done as soon as possible not to lose momentum.

There are local symbols which can be used for the Bailgate Pound – Lincoln Castle, Lincoln Cathedral, Lord Alfred Tennyson. Could even use characters from the poetry of Tennyson.

An attractively designed Bailgate Pound would become a much sought after collectors items for visitors.

Local currencies have been a success in Totnes, Lewes, Brixton, they retain money within the local economy, essential when the economy is deflating, so why not Bailgate?

The Bank of England injects money into the economy through Quantitative Easing. In reality they are creating money, but if not backed by real resources, real growth, they are creating debt. The underlying problem beside the debt, is the money goes to the banks, they use it for speculation, commodity prices go up. Creation of money not backed by real resources causes inflation. Rising prices, inflation, transfers money from the poor to the rich.

We need money injected into local economies by local councils. Not easy at a times of cuts, but all the more important when the economy is deflating. But the money injected into the local economy has to be retained within the local economy. One way to do so is by the local council acting as a Central Banker to the local economy through backing a local currency.

Stop Press: Top story in The Currency Daily on New Year’s Eve (Friday 31 December 2010)!

Stop Press: Front page news on Lincolnshire Echo on New Year’s Day (Saturday 1 January 2011), with full page coverage inside on page 3. And top news story on their website for New Year’s Day! It looks like the Bailgate Pound may go ahead as a fully fledged local currency. My own talks with local retailers shows a great deal of enthusiasm and support. [see Bailgate currency could be here to stay following success of Christmas initiative]

Also see

Echo prints 100,000 Bailgate Pounds to help traders hit by market cancellation

Shoppers cash in their free Christmas cash as Echo prints 100,000 Bailgate Pounds

Echo prints 100,000 Bailgate Pounds to help traders hit by market cancellation

Shoppers have only a few days left to redeem their Bailgate Pounds

The Totnes Pound – going well and considering its evolution

Town poised for its own currency

Buy a Totnes Pound and Help Maximise Its Potential

How the Totnes Pound works

The Totnes Pound – going well and considering its evolution

The Totnes Pound is far from spent

Good start for the Lewes pound

Lewes Pound – sparkler or damp squib?

Do local schemes such as the Lewes pound have a future?

Will the Brixton pound stick around?

Let’s not put all our pounds in the one basket

If the state can’t save us, we need a licence to print our own money

Beginning of a monetary revolution?

The Lewes Pound: A Transition Network How To Guide

Local Money: how to make it happen in your community

Localisation: A Move Away From Globalisation

Money

Money, whence it comes.

When the Central Bank prints off more bank notes and the supply of money exceeds the supply of goods and services, ie there is a mismatch, they are not in balance, we have inflation.

Inflation is a hidden tax, the pound in your pocket is worth less than it was.

When Gordon Brown claimed the economy was safe in his hands, this lie was exposed by looking at the depreciation of pound sterling. When the pound sterling fell against the Micky Mouse euro with all its woes and internal contradictions, then it was fairly obvious that something was very wrong. The pound almost reached parity with the euro, it has since picked up and is hovering around one pound equals 1.20 euros.

I am famously reminded of Harold Wilson after the UK had to go to the IMF with a begging bowl claiming the pound in your pocket was still worth the same. But I digress.

It is not only Central Banks that create money, so do Commercial Banks, they do so every time they make a loan.

You borrow a thousand pounds from the bank. You buy a car and pay cash. The man of whom you have bought the car deposits the money in the bank. The bank then loans out this money several times over.

You pay your loan back to the bank. You not only pay back the loan, you also pay interest. Where has the interest come from?

It is not only the Central Banks and Commercial Banks who create money. We do every time we buy goods and services with our credit cards. Prior to our using our credit card, the money did not exist. We hand over our credit card, and hey presto, we have created some money out of thin air.

Easy credit, easy money, creates debt!

I have somewhat oversimplified, I have ignored the velocity of money, ie how fast it circulates within the economy.

We need local currencies. Local currencies help to isolate us and put our money to better use, creating jobs in the local economy.

If we spend money in a High Street shop, that money (apart from an infinitesimal amount) goes straight out of the local economy. If we spend it in a local shop, a significant percentage of our spend, is then spent in the local economy. If it is a local currency it can only be spent in the local economy.

It used to be a capital offence to debace the currency.