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mrbluze writes:
"An interesting blog post by Charles Hugh Smith on Why Banks Are Doomed: Technology and Risk.:
The funny thing about technology is that those threatened by fundamental improvements in technology attempt to harness it to save their industry from extinction. For example, overpriced colleges now charge thousands of dollars for nearly costless massively open online courses (MOOCs) because they retain a monopoly on accreditation (diplomas). Once students are accredited directly--an advancement enabled by technology--colleges' monopoly disappears and so does their raison d'etre.
The same is true of banks. Now that accounting and risk assessment are automated, and borrowers and owners of capital can exchange funds in transparent digital marketplaces, there is no need for banks. But according to banks, only they have the expertise to create riskless debt.
...
One last happy thought: technology cannot be put back in the bottle. The financial/banking sector wants to use technology to increase its middleman skim, but the technology that is already out of the bottle will dismantle the sector as a function of what technology enables: faster, better, cheaper, with greater transparency, fairness and the proper distribution of risk.
There may well be a place for credit unions and community banks in the spectrum of exchanges, but these localized, decentralized enterprises would be unable to amass dangerous concentrations of risk and political influence in a truly transparent and decentralized system of exchanges.
It's still early days, but can new electronic currencies such as Bitcoin become mainstream without the assent of governments?"
(Score: 5, Interesting) by lubricus on Monday February 24 2014, @11:34AM
As an owner of bitcoins, could you answer a question (not trolling!)?
After all the coins are mined, what is the incentive to maintain the blockchain? Maybe I'm wrong, but as I understand it, the mining provides the computational power for maintaining the blockchain. When the monetary incentive disappears, what's to stop someone with access to lots of computers from corrupting the blockchain grabbing a "majority vote"?
... sorry about the typos
(Score: 1) by e on Monday February 24 2014, @11:41AM
Miners do not earn only the block reward; they also earn transaction fees. Bitcoin users choose their own transaction fees, and miners choose which ones are high enough to include in their mined blocks.
(Score: 2) by lubricus on Monday February 24 2014, @09:17PM
Didn't know about transaction fees. This thread has a lot of informative points, especially about the end game. I'm still having a hard time wrapping my head around the transaction fees. It seems like this sets up a situation ripe for exploitation. It seems like it would allow a few nefarious blockchain maintainers to manipulate the blockchain simply by setting their fees very low.
Not addressing you with this (addressing the thread parent), but this is the problem around the discussion around bitcoin. Techies seem to love the crypto component of bitcoin, but they seem to miss the problems. Sure, this seems to solver the Byzantine generals problem, but it requires independent generals. While there's money to be made, mining seems to assure a collection of independent generals, but when mining becomes more difficult, there seems to be a lot of mechanisms for collusion and subterfuge in the blockchain (even ignoring the size problem, exchange rate manipulation etc.) What would a functional (self correcting for collusion etc.) market for transaction fees look like?
... sorry about the typos
(Score: 1) by beckett on Monday February 24 2014, @10:46PM
i believe the transaction fee is built into the protocol, so someone would have to be nefarious enough to infiltrate the development team and change the TX fee in the source. since you can still compile your own wallet, i'm sure any changes would be tracked and discussed openly.
contrast this with the recent LIBOR scandal, that saw the US Fed and multinational banks manipulate the interbank lending rate [telegraph.co.uk], affecting consumer spending and market liquidity at a fundamental level. in the case of the LIBOR manipulation there was no source code, and there was little recourse. banks are still lending after being slapped on the wrists.
currently it is the sender's choice whether to include a transaction fee or not [bitcoin.it]. there is incentive for nodes to process the transactions that are paid, rather than the ones with no transaction fee. the current fee is 0.0001 BTC per 1000bytes of information. a typical transaction takes 500bytes, so almost everyone pays the 0.0001 BTC.
seems like a bit of a strawman. i find that most people that invest in an asset (company stock, savings bond, mattress) take little effort to learn about their investment. this has nothing to with bitcoin, and has everything to do with people's laziness. whether the investment is bitcoin, higher education, or $1000 on "santa's little helper" in the 3rd race: the same personality types end up gambling their money away rather than taking the time to research where they should put their money. you're describing irrational exuberance, which is a human failing and not exclusive to the "techies" that invest in cryptocurrencies.
(Score: 5, Informative) by beckett on Monday February 24 2014, @11:46AM
this is a really good question. the incentive to maintain the blockchain will be in the transaction fees paid out to the mining node that propagates a transaction along the chain. however, the last block to be solved (i.e. #6,929,999) won't happen until ca. 2140, so well after everyone except ray kurzweil has passed on.
by the time this occurs, bitcoin mining will have long moved out of the hobbyist basement and into the hands of corporations and governments. It is in interest of cryptocurrencies now and in the future to have an even, worldwide distribution of power-efficient mining systems (e.g. asics) to maintain the blockchain, and to avoid the rush of a lot of computers getting the 51%.
(Score: 2, Insightful) by len_harms on Monday February 24 2014, @12:19PM
I own 0 bitcoins. However, I watch it distantly.
what is the incentive to maintain the blockchain? None.
I predict when the 'easy' coins are finally mined. People will seek out other 'easy' coins to get free money. People do not want 'coins' they want value. In this case 'free' value for mining. You can see the fluctuations now. One exchange going out can send the exchange rate tumbling. It is a currency that is backed on perceived value. Most fiat currencies are based on this as well. However, I can not pay my taxes in bitcoin or buy food or whatever at my local store. I can only by law pay them in US Federal Reserve Notes. So bitcoins will only ever have value to me but only at the exchange rate.
Also being a fixed size currency you will also see other games played near the end. You will be able to manipulate the value of the coin. By doing 1 simple thing, hording coins. If I had the cash I could buy 100 million dollars in coin. This would immediately have the affect of causing the exchange rate to go up as supply went down. I could then sell you something at a higher coin rate. Then turn around and sell my 100 million in coin back into a 'safer' currency at a basically 0 lose (maybe even some gain as I ran up the exchange rate). I then have more coin than if I had sold to without the million dollar transaction. This is but a simple example of what could happen.
I could also play games if I am a government body of crashing out the currency by bouncing the exchange rate and getting people dislike using it. In other words attack the perceived value. I could burn cash to crash you out.
Most govs have a small bit of inflation to defer these two types of attacks.
Also if there is little to no inflation and high variability on exchange rate you will have a hard time with people wanting to loan out coins. As the person loaning it out does not know if they will get less or more back making it a very high risk loan. Loans are how our economy grows today. We borrow from future growth to buy that future growth.
(Score: 1) by Grishnakh on Monday February 24 2014, @12:59PM
Not only that, but what about inflation? Maybe I'm missing something, but there's only a fixed number of possible Bitcoins, and they get harder and harder to mine. Healthy economies require a currency where the money supply constantly grows, in order to avoid inflation (i.e., if the economy is growing, the money supply needs to grow with it). If you don't do this, you'll wind up with deflation, which is a very very bad thing.
(Score: 1) by sfm on Monday February 24 2014, @01:49PM
Bitcoin has an inherent limit, even if you ignore diminishing returns as more and more is created. This limit is large enough to allow Bitcoin to flourish for a time, but will eventually be limited. From there, they can either change the basic rules, or more likely, a new cryto-currency will take its place. Much easier, now that Bitcoin has proved the path.
Biggest downside I see here is any new currency will "grow up" in a time of far stronger regulation.
(Score: 1) by len_harms on Monday February 24 2014, @05:36PM
I 'skimmed' inflation a bit. Inflation is good or bad depending on what you are doing with money. If you borrow money you want inflation. We borrow vast sums of money. If you save money you want deflation.
With deflation you can actually stall out people wanting to buy things. As if they simply wait they can buy some positive multiplier of what you made (unless you recalc your price every second). The only people who would buy things are people that *must* buy. If they can wait they will. As to increase your fortune all you have to is let the clock tick. If the price of goods was perfectly priced (which is illegal) this would not matter. But we do not live in that world.
With no inflation money will move towards people who have it already becoming more and more concentrated. As the more you horde the more 'rich' you are. As the exchange rates go up.
(Score: 2, Interesting) by Grishnakh on Monday February 24 2014, @05:54PM
Right, and that's why deflation is so bad. It works against the economy; in a healthy economy, you want people buying and selling a lot of stuff. You don't want them hanging onto money, because that's economic activity that isn't happening. The more trade there is, the better off everyone is (as long as bubbles don't happen, of course, as we've painfully learned several times in the last couple of decades). Obviously, not saving any money is a bad idea for pretty obvious reasons, but in general, if everyone starts hording their money and not buying anything, it's bad for most everyone, because then companies go out of business, people lose their jobs, etc. The term for this is "recession". Deflation makes it worse since it rewards people for hanging onto their money, which prevents the society from emerging from the recession.
What you really want is inflation: it rewards spending money, which makes the economy healthy, and discourages hording money. But you only want a little bit of it. Too much inflation (hyperinflation) is really bad as Zimbabwe found out (and various European countries back in the first half of the 20th century), since the currency stops having any real value. A small amount of inflation is ideal, since it encourages spending, while not overly penalizing saving, and gives you a little buffer room to avoid deflation. It's similar to unemployment: zero unemployment is a bad thing; you always want a small amount of it, as it makes for a healthy economy (people need to move around between jobs, not stay in the same job forever), but too much is obviously really bad.
(Score: 1) by beckett on Monday February 24 2014, @10:30PM
this may or may not be true. certainly in the idea of free market economies this may be true, but also understand by keeping interest rates at 0% or lower, this already disincentivises a savings account, and encourages leveraged investments.
most of us live beyond our means and owe our soul to the company store. this is what a "healthy economy" with lots of spending, rather than instilling the ethic to save up for a rainy day, does to people. if you owe money on a mortgage you will not want to go on strike, and perhaps this type of compliance is exactly what people need from a dissatisfied underclass.
i'm not saying the economy is as simple as this relationship, but we should at least recognize there are benefits to saving, and people should be incentivised to save more than they currently do. with easy access to credit, someone can put themselves into financial ruin far quicker than their parents or grandparents could.
(Score: 2) by maxwell demon on Tuesday February 25 2014, @03:20AM
Is this really a necessity, or is it just a shortcoming of the current economic system? It seems to me that a system where everyone buys only what he needs (or really wants) is more sustainable than a system where everyone buys new stuff all the time. Indeed, a lot of the ecological problems come from our excessive consumption of resources, which is driven by people constantly buying new stuff they don't really need.
Or formulated differently: Is our economy really healthy when people buy much, or is it just addicted, and the negative effects of deflation are essentially withdrawal syndromes?
The Tao of math: The numbers you can count are not the real numbers.
(Score: 1) by Grishnakh on Tuesday February 25 2014, @12:25PM
That's a very good point. However the reality in our current economic system is that more consumption leads to more employment, and vice versa. Less employment means more unemployment, which means people suffering and starving. Maybe if we adopted a basic-income scheme this might be different as people wouldn't absolutely need to work to survive.
(Score: 1) by beckett on Tuesday February 25 2014, @12:36AM
those days are long gone. bitcoin is 5 years old, and over 50% of them have been mined.
. the only way to mine them directly is to use specialised equipment (asics), and there is a long waiting list and significant upfront cost.
what is interesting is the baseload of casual miners that also exist: people currently using usb-powered asics that are getting milliBTC a week. this is the 'long tail', or the 'casual gamer', and this persistent, distributed hash rate may eventually comprise some of the future blockchain nodes.
this may have been a stronger argument back in 2012. In 2014, $100 million in bitcoin isn't that special: there are 176,782 addresses that are holding $244million or more. each. [bitinfocharts.com] You can't push those guys around with a pathetic $100 million. I think bitcoin in 2014 is much bigger than you think it is.
The price fluctuates wildly because nobody can completely agree what a bitcoin should be worth. once everyone agrees that bitcoin should be worth $foobar is the day it can reach equilibrium. To me, this indicates there is currently a short-term opportunity with high risk. I am a conservative investor but i can currently afford to take an educated gamble on some bitcoins.
I am optimistic about the future value of 1btc. I don't claim to know what it will be worth in a month, a year, or a minute from now, but I think they will be worth more in 12 years than they are worth now. I certainly wouldn't recommend anybody spend money they couldn't afford to lose on bitcoins, but otoh i think everyone should consider a small amount of bitcoin if they understand and consider the risk.
If those were the only two ways to attack your spending power in a fiat currency.
with regards to the utility of bitcoin, cash cannot be backed up, and credit card companies attempt to choke off funding to places like wikileaks. every time a credit card company gets hacked [forbes.com] the consumer ends up footing the bill. The distributed bitcoin protocol also renders the entire Western Union model of business obsolete: imposing onerous service charges for people to shuffle around a bunch of virtual dollars from one person to the other.
a variety of bottlenecks in the distribution of music, video, books, and research maintained the silos and paywalls for years. these obsolete models are currently being torn down by a civilisation making the shift to online, peer-sharing approach to media. why should it be unreasonable to expect the same thing to happen to money? we may need to use a bank now, but maybe not in the future.
(Score: 1) by len_harms on Tuesday February 25 2014, @11:15AM
I think bitcoin in 2014 is much bigger than you think it is.
I made up a number. What you are telling me is there are people out there who hold huge sums of coin and could manipulate the exchange price. Right now they have no incentive to do so as it would hurt their value. What happened if a rouge state got a hold of one of those chains? Or some guy decided its just bits and worthless to him and he just wants to troll everyone?
If those were the only two ways to attack your spending power in a fiat currency.
Most ways of attacking a currency involve attacking the credibility of the money. like this we may need to use a bank now, but maybe not in the future. The upside to cash is I do not care about the history of the dollar I hold. Its value is immediate and no baggage other than space. A coin chain requires an exchange to validate the transaction.
the consumer ends up footing the bill.
That would be no different in the bitcoin world. Do you think people will stop loaning money out? Bitcoin is a holder of value. Not a magic way to fix fraud.
I am optimistic about the future value of 1btc.
Good for you. I am not. I see it as a classic speculation bubble. The middle game looks all roses until it pops. For example 1/5th the value was lost in the past 24 hours. That may come right back or spend months getting there. You do not know. People who invest in that sort of reckless way end up broke or wildly rich if they happen to guess the right time to get out. No one can see the future...
You may have 0 real dollars in (aside from power costs). As you may have mined it yourself. Or you have 'invested' in it by buying asic hardware.
People were pumping money into .com companies right up until that bubble burst too. To use a recent example.
I have by using sound investing techniques turned my money into 5x what I started with. The bitcoin screams stay away to me. Oh I will watch from the sidelines though.
http://qz.com/72118/yes-people-are-hoarding-bitcoi ns/ [qz.com]
At some point the hoarders will realize they have bits on a disc and will want to buy cars/houses/etc with it... US dollars is just paper until you spend it... You are seeing the value of your coin go up because everyone is holding on. Dont be the guy who is holding the bag. Hope you make tons of $. Do not worry about maximizing profits as you can not see tomorrow. Sell and feel good about the amount you made for 'free'.
http://blockchain.info/charts/market-price [blockchain.info] .com futures. And calling it a different world. The market reminded everyone about the average.
Last time I saw graphs like that people were investing in