The value of bitcoins
, a digital decentralized cryptocurrency, has been dramatically increasing
. Do you think that it is a viable currency? I like the tech, but I just can't see myself using them unless they were accepted by major online retailers. Who knows? Maybe it will succeed.
Well, other than that it hasn't crashed and burned after the CEOs and VC investors make a shitload of money, then cut and run.
Seriously - Despite what that site says, this is not a new idea. It's just another trade based internet currency which will enjoy some moderate success, make a bunch of money, and then vanish, leaving the customers holding the bag. The only difference here is that it's more distributed and a little harder to take down in one blow, but it's doubtful that it'll ever amount to much.
I'm of the mind that the only way an internet currency can function is if it works like Flow or Whuffie and only has a basis in the value of the individual, rather than in actual "IRL" money.
Really, something like Whuffie would only be useful post-scarcity, when life's necessities aren't dependent on having currency.
I just wrote a 6-page paper with Whuffie as one of my inspirations, so I've been thinking about it a lot. Close enough to true.
Whether this particular company is going to be successful or not is not that important, it is only a matter of time before someone figures out the right way to implement this / makes the right kind of deals with Facebook / Amazon / Google. Disparaging the idea vs the company is an entirely different thing and much more interesting.
The step to using this kind of currency is akin to the adoption of paper money and abolishment of the gold standard. The difference being that with paper money you still had a central authority, i.e. the government / central bank, which stood behind the value and in which you could place trust. By extension, of course, the government is just all of us collectively and this new form of currency does what the Internet always seems to do and cuts out the middle man. It is the purest form of currency in that respect and it's value explicitly depends on the amount of trust people have in it being useful at some point in the future.
The obvious criticism then is that this is a chicken - egg problem; without this sort of currency being a major/dominant form of value exchange there is no guarantee that people will use it in the future and vice versa. Of course, we know companies who have solved the chicken - egg problem so that is not a very good argument.
Another point would be that since potentially switching currencies could be as easy as switching from MySpace to Facebook or just downloading a different "wallet" app to your machine, trust in a digital currency is inherently lower than trust in something that has to be physically produced. This is also not a very good argument, since a widespread digital currency will be integrated into third party services which would all have to switch as well.
The best argument against a currency of this type (and one that I have not found a good counter argument against yet) is that it's creation is entirely set in stone by the generating algorithm. This makes it a horrible, horrible currency for economists who want to have a moderate and steady amount of inflation. Since demand for a currency changes unpredictably and sometimes wildly due to fluctuations in national productivity / wars / economic bubbles, the supply side must be able to adjust. However, if there is leeway in the algorithm and someone controls that leeway, then that person becomes the central authority and focus of trust in the currency and we are back to having an ordinary currency. Even worse, if the algorithm has leeway and the adjustments in generation of new currency is automatic, the algorithm becomes a ripe target for large scale value manipulation.
Now, to refer it to someone smarter than me who can explain it much better than me, He's Adam Cohen - Senior Software Developer at Seatgeek, and Stanford educated Economist - Who doesn't think it's a bad idea. In fact, he actually thinks it's a ludicrously bad idea, and an outright Scam.
There are further arguments for and against later on, many of which are quite interesting. I still don't trust bitcoin at all, and I think if you trade in it, you're a damned fool - I've got a pretty good nose for cons, and this stinks like week-old offal. Even failing that, I still wouldn't trust it, as it reminds me quite strongly of Tulip mania in the 1600s.
Edit - It doesn't help that bitcoin apparently relies on Honesty of the masses and a good helping of hope to keep it afloat. If you have a botnet, or money to afford use of one, then you could bring down bitcoin within a very short period of time, and this is not a hidden weakness - it's right out there, in plain sight, and is part of how it works. That alone is a very good reason not to trust bitcoin AT ALL.
You have made me think enough about economics and currency to be truly terrified.
Also, it's trivial for anyone to setup a new network with the same protocol as Bitcoin. I could setup FRCCoin if I wanted to. If someone attacked it, I could just setup FRCCoin2 that is the same as FRCCoin1 prior to the attack.
Also, when you setup your own Bitcoin network, you can setup different rules if you want. The "real" Bitcoin is setup in such a way that over time there will only ever be X Bitcoins in circulation. It doesn't have to be that way. You can create a Bitcoin-powered currency that is pegged to the US dollar, to gold, to whatever the fuck you want.
The fundamental thing that is going on here is the willingness of people to exchange legal tender for what amounts to CPU time. As long as people are willing to do that, there's nothing any government can do to stop people from laundering money or engaging in unregulated commerce.
Do you still think it's a scam, as a side note, or have you changed your position?
I must admit, there is also that something is giving the the gut feeling/hunch that it's a scam, and until I have enough to go on to tell my gut to STFU, I'm sticking with it.