[LINK] Two articles on Bitcoin

Pennarun's article isn't worth reading.

A rationality and bitcoin related question.

When does the Singularity institute plan on redeeming any bitcoins it gets as donations?

• Immediately.(the dollar perceived as a better store of value than bitcoin, any given moment of time)
• Wait for a while until a signal comes which boosts bitcoin value like a major e-store accepting it.
• Wait until all the dollars run out (Bitcoin perceived as a better store of value than the dollar)

The first article is spectacularly clueless on (1) (he simply lacks the relevant knowledge to express an informed opinion on the topic one way or another), but pretty much completely right on (2). I lack the expertise to judge the claims on (3), and he's clearly wrong on (4). So it's one or two out of four, depending on whether his claims about (3) are correct.

As for the second article, it says "Bitcoin is unstoppable without end-user prosecution." Well, duh, many things would be unstoppable without prosecuting the people involved in them. So they get prosecuted. Unless you're a rare expert ready to go to extraordinary lengths, there is no anonymity on the internet if the government is decided to come after you.

I like Avery but I thought his critique was an ill-thought-out mess.

1) I'm not informed enough to judge whether the gold standard is a fundamentally good idea or not, but I can see that Avery is even less informed than me. Some of his (bolded!) statements like "Gold is a stupid inconvenient currency that's worse than paper" are basically nonsensical; that has nothing to do with the economic argument for a gold standard. Much of the rest seems to be non sequiturs, bringing up only briefly (and then dismissing mockingly) any real reasoning for a gold standard. Anyway, if we really wanted to, we could add inflation to Bitcoin too.

2) I think that governments will try to squash it, but I'm not sure if they can succeed. Bitcoin exchanges are starting to proliferate in multiple countries around the world, and the USG can only do so much to stop people from using them. In the future, I think it could continue to thrive even if the USG tried to seize American Bitcoin-related assets and prevent Americans from transferring money directly to Bitcoin exchanges. There are just too many ways around those laws -- c.f. online poker legislation. I think this is the most powerful point Avery makes, though. If the USG acted now to attack Bitcoin users, I could envision people drastically losing confidence in the currency and a resultant death, but the government is slow to act.

3) I share Avery's fundamental skepticism but Bitcoin is really pretty simple; it's pretty hard to imagine a mystery vulnerability in it short of busting SHA-256. I agree that it's a little bit unnerving to imagine our entire financial system sitting on something like Bitcoin, but I'm not sure whether it's rational to reject it based on that. If Bitcoin's benefits really are significant, I think we could probably do further work to prove its security. Avery should actually take half an hour and figure Bitcoin out before he makes such a critique.

4) Somehow he managed not to even point out why it's important for a currency to work offline. Credit cards don't usually work offline, and we use those often enough. What's the big deal? If this turned out to be really important, one could imagine middlemen with reserves of Bitcoin issuing physical currency, similar to how a currency backed by the gold standard would issue physical currency that represents quantities of gold -- as much or as little physical currency as we care about.

(edit: in the spirit of jim's disclaimer above, I also own a very small handful of bitcoins, so I may be biased.)

"Why Bitcoin will fail" - by Avery Pennarun - was pretty awful.

Calacanis makes some pretty strong predictions. I recorded one at http://predictionbook.com/predictions/2686

In 2006 I read a paper about a cryptosystem for e-cash and it was way worse than BitCoin. When I read about BitCoin, I couldn't believe how perfect the scheme was. It turns out there's no "Arrow's theorem" for e-coins -- every desirable criterion can be satisfied at once.

The biggest doubt I had about BitCoin was that it would never gain social traction. But watching the USD/BitCoin exchange rate increase 10x in 5 months has made that doubt smaller in my mind.

And so I offer LW readers this applied-rationality suggestion: If you're looking to make a high-risk investment, BitCoin seems like an overdetermined choice. I judge it to have a very high expected return - something like 2x in 1 year - and I'm investing today.

On the subject of 2.

People have speculated "could a government stop Bitcoin".

The answer is an unqualified "Yes", and the project will tell you the same thing. All it takes is having over 51% of the computing power of the world's mining operations.

A fork of Bitcoin called CoildCoin was killed by Luke-Jr. He explains his reasons for it a few pages into that thread, but basically he considered CoiledCoin to be fraudulent and/or a threat to Bitcoin. He claims he used only his own resources but its possible he used a large mining pool he operates.

Now the Bitcoin FAQ will tell you that there are a lot of limits to what you can do with 51% - little more than double-spending your own coins. That is enough though - once people know that the blockchain is corrupt they will walk away from it.

I've seen estimates that for only $80MM you could have an order of magnitutde more processeing power than the entire pool of miners that were operating at the peak last summer (many of who could come back online quickly). This puts the destruction of Bitcoin easily into the operating budgets of most Nation states, lots of companies and quite a few individuals.

Weirdly, though I think that bitcoins will succeed (and accordingly have some) I don't think Calacanis' article is well-founded. To focus just on the points I feel I can judge with some merit:

Bitcoin is unstoppable without end-user prosecution.

I don't think this is true. Shutting down of all legitimate currency exchanges would tend to increase the barrier to investment by legitimate investors and be likely to decrease interest in Bitcoins. Anecdote: I would get less interested in bitcoins if this happened. Also, a focused government campaign against it might succeed in branding it as evil in public eyes, again reducing interest. I do recognize that these factors wouldn't destroy bitcoin, but they would reduce the chances of it "changing the world".

Bitcoins will change the world unless governments ban them with harsh penalties.

Again, I'm not so sure of this. Can anyone give me any legitimate reasons to anticipate this? So far I've just people on the bitcoin forums saying that the dollar/euro will collapse and bitcoin will attain worldwide dominance.

Basically, I predict they'll find a decent niche, won't replace any currency system in any major country and won't increase in value to insane levels.

One of the ways in which government will make it hard for holders of bitcoins that I have not yet seen mentioned here is that it will make it so that holders have no recourse to the courts when they are robbed or defrauded of their bitcoins.

In 2006 I read a paper about a cryptosystem for e-cash and it was way worse than BitCoin. When I read about BitCoin, I couldn't believe how perfect the scheme was. It turns out there's no "Arrow's theorem" for e-coins -- every desirable criterion can be satisfied at once.

The biggest doubt I had about BitCoin was that it would never gain social traction. But watching it increase 10x in 5 months has made that doubt way smaller in my mind.

And so I offer LW readers this applied-rationality suggestion: If you're looking to make a high-risk investment, BitCoin seems like an overdetermined choice. I judge it to have a very high expected return - something like 2x in 1 year - and I'm investing today.

(Disclaimer: my ownership of bitcoins constitutes a financial conflict of interest with respect to everything I write on the topic.)

I think Jason Calacanis has it right, and Avery Pennarun has it wrong. Bitcoin is likely to succeed.

.1. The gold standard was a bad idea.

True, but has no bearing on whether Bitcoin will succeed or fail. Even if Bitcoin causes economic instability in the same way that the gold standard did, individual users of Bitcoin have no reason to care.

.2. Even if it was a good idea, governments will squash it.

Possible, but I don't think it's very likely, because its decentralization makes squashing it hard. It's not like they can raid some company's offices and disable the network. The dollar-to-coin exchanges could be targeted, but they're independent, expendable, and located in many different jurisdictions.

.3. The whole technological basis (cryptosystem) is flawed.

False, and Avery makes this claim from a position of admitted ignorance which makes it irresponsible. There are a lot of eyes on Bitcoin and the primitives it's constructed from; if it were flawed, the flaws would very likely have been discovered by now.

.4. It doesn't work offline.

True, but irrelevant. PayPal and bank wire transfers don't work offline either. And wireless internet access is quickly becoming a worldwide universal anyways.