Bitcoin, fraud and digital currencies

Marc Andreessen, web revolutionary and venture capitalist, wrote an essay for the New York Times called Why Bitcoin Matters. Glenn Fleishman, however, thinks he misunderstands and misrepresents key aspects of the payment system and its nature. Andreessen's right up to a point, Fleishman writes, but flubs when it comes to fraudulent transactions, anonymity, and Bitcoin's potential as a currency replacement.

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  1. jerwin says:

    This seems so very lazy....

  2. hallam says:

    "Bitcoin is a classic network effect, a positive feedback loop. The more people who use Bitcoin, the more valuable Bitcoin is for everyone who uses it, and the higher the incentive for the next user to start using the technology. "

    The same is of course true of a Ponzi scheme or a lot of Internet stocks. Like Netscape, a stock which went up and up and up for ages until it suddenly started going down and down and down. Positive feedback works both ways in a bubble: It works when people rush to put their money in and it works even faster when people start running for the exits.

    Having seen five rounds of crypto-currency hype, I see no reason for the outcome to be any different this time round. Just like Gold-Age, eGold and dozens more that have been forgotten, the current round of crypto currencies will either fail to take off or they will die a sudden death when the Feds move in.

    The banking and RICO statues give the Feds almost unlimited power to regulate the movement of money. They don't even need to have the law on their side either, all the feds need to do to make the bitcoin bubble burst is to cause people to stampede for the exits. They can do that with one grand jury handing down a RICO indictment for using bitcoin.

    Further, there is no shortage of regulatory topics and issues that will have to be addressed, since almost no country’s regulatory framework for banking and payments anticipated a technology like Bitcoin.

    Only they have done. There have been alternative currencies floating around since the start of modern banking. There has never been a time when the central banks had a monopoly on issue of currency. Ask Mickey Mouse.

    This group was around over 20 years ago when I wrote a paper on digital currencies when I was at W3C.

    http://www.manchesterlets.org/

    Most times the payment systems get to a certain point and the tax authorities show interest and they suddenly collapse. Because avoiding the attention of the authorities is usually the whole point.

    Right now the holders of bitcoins are almost exclusively speculators and drug dealers. All the drug dealers care about is that they can use the scheme to transfer money reasonably effectively with acceptably low transfer risk. Bitcoin does not need to be absolutely stable to fullfil that need. They are not going to transfer all their money in one go. Meanwhile the authorities will be looking to trace the money to the source and destination rather than shut down the infrastructure.

    But no, go ahead. Libertopia is always right. Bitcoin is the future of banking and you will all have a pony.

  3. glenn touches briefly on the key question for most people: the difference between a payment system and a currency.

    i have zero interest in bitcoin as a currency, despite some awareness of the theoretical interest in what it would mean politically and economically.

    i have HUGE interest in a fee-less (or least absurdly cheap) payment system (particularly in the US where even a regular one-time bank-to-bank transfer takes either 2 days or ridiculous fees).

    people need to split these two functions apart a lot more when they discussion bitcoin, because they are in no way necessarily related.

  4. cegev says:

    Except there are numerous costs involved in Bitcoin as a payment system. For example:

    • The transaction fees themselves: very small by comparison with several other systems, but these will eventually be higher.
    • Costs to convert to/from other currencies: these are currently often higher than credit card fees.
    • Tax reporting costs: in the US, at least, to the best of my understanding, almost every payment you make with Bitcoin needs to be reported as a transaction with capital gains/loss. Every meal you have, every dollar worth of bitcoins you spend online, needs to be accounted for with the cost basis of the bitcoins you purchased, the dollar/bitcoin exchange rate at the time you made the payment, and so on. If you use bitcoin to replace all your payments, you could easily end up preparing a tax return several hundred pages long and involving huge preparation costs in terms of either accounting bills or time.
  5. GlennF says:

    Fascinating. I never say they are untraceable. In fact, I wrote, "Bitcoin is only traceable within the system to a certain extent." I then provide details about the extent to which they are, including a reference to an October 2013 academic paper that shows how some kinds of transactions can be unpeeled and tracked (to a surprising extent) but others can't.

    Recorded, traceable, and anonymous are different commodities. All transactions are recorded. It is possible to use change addresses in a way (described in that paper) to prevent easily or at all linking a sequence of transactions in and out. (Zerocoin would eliminate all connections between in and out transactions.)

    Anonymity in the way you're discussing it isn't within the Bitcoin system, but rather an externality: can an association be made between an individual and a Bitcoin address, because, ultimately, the value has to be taken out of the system to be traded for goods and services. That's increasingly less the case, the more companies accept Bitcoin for payment.

    "There are no Tor-like mixmaster systems for Bitcoin": There are, in fact, coin mixing operators, but they are unreliable or corrupt currently.
    Jesus Christ, dude -- read my own article.

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