First they laugh at you, then they send in the Feds

May 15, 2013 12:54 AM

The Department of Homeland Security has apparently seized Mt.Gox's Dwolla account, a key US mobile payments account associated with the largest Bitcoin exchange. Mt.Gox has confirmed that their Dwolla account is disabled, but have not been party to the court order themselves.

Dwolla is an unregulated banking service, akin to Paypal. However, as they transfer funds directly from US bank accounts, rather than through Visa, they charge substantially lower fees. Mt.Gox are the largest bitcoin-to-dollar exchange, so Dwolla <>Mt.Gox was a very popular method of converting US dollars to and from the infamous digital currency, bitcoin. It was recently calculated that the equivalent of over 1 exaFLOPS (1000 petaFLOPS) of processing power are being used to 'mine' bitcoins i.e. performing the increasingly complex integer operations to find the bitcoin hashes. That's more than 8 times the power of the top 500 supercomputers combined.

posted by ArkhanJG (146 comments total)

Isn't the ultimate ideological point of Bitcoin to be a replacement for ordinary currencies, not simply a target for speculation and conversion? Surely the true believers aren't worried at all!
posted by Jimbob at 1:07 AM on May 15, 2013

It was recently calculated that the equivalent of over 1 exaFLOPS (1000 petaFLOPS) of processing power are being used to 'mine' bitcoins

I know that's why I have three GeForce GTX Titans running in SLI on my home box. To mine bitcoins. Not because I need to obsessively count every single hair on Eliza's head in Bioshock Infinite.
posted by Purposeful Grimace at 1:20 AM on May 15, 2013 [1 favorite]

Really eager to hear what on earth their rationale is for seizing their Dwolla account in this case. Mt. Gox isn't involved in anything illegal at all, but it's nice to see DHS threatened enough to go after one of the funding vectors.
posted by disillusioned at 1:27 AM on May 15, 2013 [1 favorite]

This would be a choice news item to funnel back in time to unsuspecting pre-Gibsonians.

The year is 20X3. Forces from the fearsome United States Department of Homeland Security have seized control of the digital marketplace of Dwolla, putting at risk the secretive Mount Gox, de-facto headquarters of a virtual currency "mined out" by an anonymous network of hackers more powerful than the 500 most powerful supercomputers on Earth... combined!
posted by Rhaomi at 1:30 AM on May 15, 2013 [68 favorites]

Mt. Gox isn't involved in anything illegal at all, but it's nice to see DHS threatened enough to go after one of the funding vectors.

How do you know that?
posted by empath at 1:36 AM on May 15, 2013 [3 favorites]

omg schadenfreudegasm

squee i live in a country where they can just fucking break in and take your shit if they don't like what you're doing, this is a thing that i am pleased about and yes i am going to continue to claim that i am anything but an apologist for power
posted by This, of course, alludes to you at 1:37 AM on May 15, 2013 [3 favorites]

they can ALWAY just fucking break in and take your shit if they don't like what you're doing ; the question is i) are there laws that punish this and ii) what is the activation energy to enforcing those laws so that Power is deterred from capricious abuse.....

The US, leading the way for so long, has less of i and more of ii every day.
posted by lalochezia at 1:42 AM on May 15, 2013 [1 favorite]

[...] the secretive Mount Gox, de-facto headquarters [...]

^ Let me fix that for you...

[...] the secretive Mount Gox, an exchange established to buy and sell cards from a complex turing complete card game, de-facto headquarters [...]
posted by tychotesla at 1:48 AM on May 15, 2013 [5 favorites]

yes i am going to continue to claim that i am anything but an apologist for power

Yeah. Fight the power. I used to love the idea donating your spare CPU cycles to distributed computing projects when the aim was to find life in space, or cure cancer, or run climate models. Now that it's all just about wasting electricity to make cash, forgive me if I'm not so inspired by it. Also, I'm not entirely sure Mt Gox isn't a "power" that has more than its fair share of apologists.
posted by Jimbob at 1:48 AM on May 15, 2013 [3 favorites]

Also, I'm not entirely sure Mt Gox isn't a "power" that has more than its fair share of apologists.

apparently not enough
posted by This, of course, alludes to you at 1:51 AM on May 15, 2013 [1 favorite]

Mt. Gox? Magic The Gathering Online Exchange? We really are living in a Stephenson novel.
posted by Justinian at 1:53 AM on May 15, 2013 [14 favorites]

also lol i guess this means the fucking DHS are the good guys now
posted by This, of course, alludes to you at 1:54 AM on May 15, 2013 [1 favorite]

Nah they aren't necessarily the "good guys". But I have my doubts that a class of people with a rabid insistence that their shit doesn't stink, and that lame, boring things like financial regulations, money-laundering laws, reporting requirements, deposit insurance don't apply to them are necessarily "good guys" either. If they're really trying to operate some brave new world of monetary freedom, then they should go ahead, detach the currency from the USD.
posted by Jimbob at 2:00 AM on May 15, 2013 [12 favorites]

Yeah, there's no good guys here. DHS basically threatened a business model out of operation because they were scared about it. Bitcoin may be ridiculous, but in no way am I going to celebrate that mode of doing business.
posted by Inkoate at 2:05 AM on May 15, 2013 [2 favorites]

Internet needs a meatspace country.
posted by infini at 2:11 AM on May 15, 2013 [6 favorites]

Dwolla is an unregulated banking service

The notion in banking of "too big to fail" would seem to imply, if not demand, that there exists a corresponding label "too small to succeed."
posted by three blind mice at 2:12 AM on May 15, 2013 [14 favorites]

CampBX's Dwolla funding still works, so it's not as if every Bitcoin exchange is getting shut down. Also, wire transfers to/from MtGox are still working, if at a higher cost than Dwolla offered.

I doubt this is an attack on Bitcoin itself. If that was going to happen, it'd happen by way of some agency issuing regulations, not one account getting shut down by the DHS.

My guess is MtGox had a customer that got legal attention and DHS shut down MtGox's Dwolla account because they just didn't care enough to go after that customer in a way that didn't impact legitimate customers.

Wouldn't be the first time. The FBI, for example, has a habit of going to hosting companies and grabbing racks and racks of servers when they're only going after one customer's servers.

They're the Feds. They don't have to care.
posted by dragoon at 2:13 AM on May 15, 2013 [1 favorite]

then they should go ahead, detach the currency from the USD.

It is detached from the USD (and indeed all other currencies).
posted by jaduncan at 2:14 AM on May 15, 2013

squee i live in a country where they can just fucking break in and take your shit if they don't like what you're doing, this is a thing that i am pleased about and yes i am going to continue to claim that i am anything but an apologist for power

Bitcoin is transparently designed for money laundering, black markets and tax evasion. There is 0 chance it will survive.
posted by empath at 2:19 AM on May 15, 2013 [10 favorites]

Bitcoin is transparently designed for money laundering, black markets and tax evasion.

how dare the poors have access to that kind of thing, that's only for rich people
posted by This, of course, alludes to you at 2:22 AM on May 15, 2013 [28 favorites]

Bitcoin is transparently designed for money laundering, black markets and tax evasion. [citation needed]
posted by Inkoate at 2:23 AM on May 15, 2013 [4 favorites]

Bitcoin is transparently designed for money laundering, black markets and tax evasion. There is 0 chance it will survive.

What if they designed it well?
posted by anonymisc at 2:25 AM on May 15, 2013 [1 favorite]

empath: "Bitcoin is transparently designed for money laundering, black markets and tax evasion. There is 0 chance it will survive."

The Hawala networks have managed to survive for a thousand years, so I don't think this is enough to damn it. If anything, it's the brazenness that will do it in in the end. Black markets don't survive by issuing manifestos and press releases, that's for sure.

Incidentally, it looks like Dwolla has been cracking down on bitcoiners for a few months now.
posted by vanar sena at 2:25 AM on May 15, 2013 [2 favorites]

The idea that people who use bitcoin are poor is fairly hilarious.
posted by knapah at 2:26 AM on May 15, 2013 [13 favorites]

The idea that people who use bitcoin are poor is fairly hilarious.

Really? If you're actually rich, you have offshore banking for secret transactions.
posted by jaduncan at 2:28 AM on May 15, 2013 [2 favorites]

If you're poor you don't have enough money to either buy or mine bitcoins. That's kind of what being poor means.
posted by empath at 2:29 AM on May 15, 2013 [11 favorites]

@empath

if you're poor you don't have money to spend on forum accounts, but people start griping when i point that out

also, note the context and the construction "the poors"
posted by This, of course, alludes to you at 2:32 AM on May 15, 2013

Yeah, I meant comparatively so rather than below the poverty line.
posted by jaduncan at 2:32 AM on May 15, 2013

And regular access to a computer is the privilege of the few, yeah, but I don't think we need to play another round of who's-poorer-than-you. It's kind of off the point.
posted by reprise the theme song and roll the credits at 2:34 AM on May 15, 2013 [1 favorite]

Bitcoin is transparently designed for money laundering, black markets and tax evasion

There is a public log of every single Bitcoin transaction. It stores the amount sent, the sender and the receivers. It's possible to make a cryptocurrency that doesn't make transactions public this way, so if Bitcoin was designed as you say, they didn't do a good job of it.
posted by dragoon at 2:38 AM on May 15, 2013 [3 favorites]

It stores the amount sent, the sender and the receivers.

So? It's just a number.
posted by empath at 2:56 AM on May 15, 2013

It is detached from the USD (and indeed all other currencies).

Well, this is a non-story, then, since no-one measures the value of bitcoins in USD and they are useful without exchange, no-one needs Mt Gox or Dwolla in dealing with then, right? I can just send some bitcoins to my bank to pay my mortgage.
posted by Jimbob at 3:06 AM on May 15, 2013 [1 favorite]

Actually that is a good point, say I had a bunch of bitcoins in a wallet on my phone?

Is there anywhere that I could take that electro-phone wallet and pay, in person for a thing and then get that thing?
posted by Just this guy, y'know at 3:13 AM on May 15, 2013

no-one measures the value of bitcoins in USD and they are useful without exchange

So, like, what you're saying here is, because I can bring up a list of the estimated value of pretty much every nation's currency compared to the US dollar, that means a forex shutdown would make each nation's currency worthless, right?
posted by reprise the theme song and roll the credits at 3:14 AM on May 15, 2013

It was recently calculated that the equivalent of over 1 exaFLOPS (1000 petaFLOPS) of processing power are being used to 'mine' bitcoins i.e. performing the increasingly complex integer operations to find the bitcoin hashes. That's more than 8 times the power of the top 500 supercomputers combined.

This is, btw, the really clever part of bitcoin, and I think most people don't know what this is for. The whole bitcoin system works based on a 'proof of work' algorithm, where whichever table of transactions has the largest papertrail behind it is accepted as authentic. With the amount of money tied into bitcoin, there is actually a tremendous financial incentive to add more computer power into the network, because if anyone put together a more powerful network of computers (or perhaps found a flaw in the algorithm), they could theoretically steal all of the bitcoins, because it would then be accepted as authoritative. The mining system that lets you get 'free' bitcoins for joining the network is what keeps the network growing large enough make the possibility of taking over the network basically impossible.

However -- what happens when bitcoin reaches end-of-life and you can't mine any more? What incentive would their be to keep 'mining'? Or when the difficulty gets so high that the cost of mining out-paces the value of the coins?
posted by empath at 3:19 AM on May 15, 2013 [2 favorites]

Is there anywhere that I could take that electro-phone wallet and pay, in person for a thing and then get that thing?

I've heard there are a few, mostly in NYC and SF. I gather it's not actually convenient yet though, as you still need to fiddle with phones for a bit. I guess you pay like that in order to pay like that.
posted by tychotesla at 3:20 AM on May 15, 2013

That it was the DHS that shut it down, and not one of the financial or commerce agencies, would imply strongly that money laundering was at issue.

When you operate outside of most financial and governmental regulations, the governments have a freer hand in going all-out in their actions, what with having no regulations to constrain their own actions either.
posted by ardgedee at 3:21 AM on May 15, 2013

Is there anywhere that I could take that electro-phone wallet and pay, in person for a thing and then get that thing?

There are people and organizations which accept bitcoins in exchange for goods or services. Some of them, I understand, are legitimate and not illegal at all. However, you're unlikely to meet them in person, because, relatively speaking*, there just aren't that many people trading in them right now.

Disclaimer: I have never owned a bitcoin.

* relative to the population of the country you live in, for any given value of "the country you live in"
posted by reprise the theme song and roll the credits at 3:21 AM on May 15, 2013 [1 favorite]

Is there anywhere that I could take that electro-phone wallet and pay, in person for a thing and then get that thing?

You should give a read to Kashmir Hill's recent set of articles on Forbes, where she lived for a week in San Francisco solely on Bitcoins. It isn't easy, but she survived. You can indeed pay for real things in real life with BTC, just barely right now.
posted by Inkoate at 3:24 AM on May 15, 2013 [2 favorites]

because I can bring up a list of the estimated value of pretty much every nation's currency compared to the US dollar, that means a forex shutdown would make each nation's currency worthless, right?

No. Because I could take my nation's currency, which isn't USD by the way, and buy something with it. A can of Coke say. From my local store. Whose owner doesn't know what the fuck a bitcoin is. Or I could pay my electricity bill with my nation's currency. To an electricity utility who doesn't price their product in fucking bitcoins. And who would price something in bitcoins, given their recent hyper-deflationary swings?
posted by Jimbob at 3:32 AM on May 15, 2013

But if I were to try to do the same with your nation's currency, I wouldn't get very far, would I? Because I'm not dealing with the people who deal in your nation's currency.
posted by reprise the theme song and roll the credits at 3:42 AM on May 15, 2013

Right but there's no country on earth you can go to and spend it like real money.
posted by empath at 3:51 AM on May 15, 2013 [1 favorite]

Okay then. But at the moment the only "native" things you can buy with bitcoins are pretty much more bitcoin-mining hardware, and maybe a muffin from a few exclusive places in San Fransisco. On its own, it's about as financially useful as sea shells as a real currency. People are only interested in it because of its exchange value. People are buying and selling it hoping to make money on forex. People are mining coins in awareness of their value in USD. They use the USD price to make decisions on what hardware to buy, how much the electricity is costing them, whether its worth it.

And yet...the idealists, the manifestos will tell you its an alternative, real currency in its own right. The manifestos will also tell you bitcoin is a way to escape from the evil of bankers (what the hell are MtGox and the various wallet-storing sites, then?). The manifestos also promote the unregulated "free" nature of bitcoin - as if too much regulation is what has caused recent financial catastrophes. The hype doesn't match the raw reality that people are actually only interested in using bitcoin to turn electricity into little green paper bills.
posted by Jimbob at 3:57 AM on May 15, 2013 [5 favorites]

Right but there's no country on earth you can go to and spend it like real money.

Well, yeah, that's true. If you're looking for money you can use to walk into any store in a given country, and buy stuff with it, that's why countries print money.

The whole point of bitcoin is that it's a stateless currency. Rather than relying on a particular government to continue to recognize its vested interest in keeping a currency scarce, bitcoins' scarcity is maintained by mathematical law; by difficulty of computation.

Of course, scarcity is only one part of value. (It's not that hard to make something that there's only one of, and that the world wants zero of). Like paper money, and even more like the entirely electronic money in my bank account, they have no intrinsic value — there's no reason to want them unless everyone else wants them, too. People in general have pretty much gotten behind the idea of wanting the money their country prints — bitcoin, not so much.

There aren't a lot of people who want bitcoins. I'm not particularly interested in having any.

People are only interested in it because of its exchange value. People are buying and selling it hoping to make money on forex.

Sounds like a speculation bubble. Kinda funny (to me) to think of bitcoin as the new baseball card.

I just think there's a big difference between that, and calling the mere existence of exchanges (and exchange rates) evidence of a lack of value.
posted by reprise the theme song and roll the credits at 4:19 AM on May 15, 2013 [2 favorites]

MetaFilter: something that there's only one of, and that the world wants zero of
posted by reprise the theme song and roll the credits at 4:19 AM on May 15, 2013 [3 favorites]

This guy bought lunch with BitCoin like two years ago.
posted by LogicalDash at 4:20 AM on May 15, 2013

Like paper money, and even more like the entirely electronic money in my bank account, they have no intrinsic value — there's no reason to want them unless everyone else wants them, too. People in general have pretty much gotten behind the idea of wanting the money their country prints — bitcoin, not so much.

People didn't just happen to get the idea of wanting to use their country's paper money. It's enforced by law.
posted by empath at 4:21 AM on May 15, 2013

I think people now are buying it for combinations of these three reasons:

1. Because they are libertarian with regard to what you should be able to buy.*
2. Because they don't trust governments not to devalue currency at any time via Central Banks.*
3. Financial speculation.†

* That's putting it charitably, but not necessarily inaccurately.
† Teehee!

Buying things in person with it is presumably besides the point for a lot of people. The point is that like gold it can't be made victim to government caused inflation (there's apparently a limited quantity of bitcoins, BTW), and unlike gold and other currency it can be fairly anonymously stored and transported.
posted by tychotesla at 4:22 AM on May 15, 2013

The thing I find most hilarious about BitCoin this week is the concept of BitCoin specific mining machines, e.g. machines whose sole and only capable purpose is to mine BitCoins. Actually, the hilarious thing isn't that the machines exist, but that they're sold.

Think about it. Imagine a black box: all it needs is electricity, and every once in a while, a silver dollar pops out of a slot onto your desk. The machine can't do anything else; that's all it does. Electricity in, money out.

I laugh just thinking about it. The manufacturers of these machines are placing a bet with their customers: they bet they'll make more money selling the machines than they would by simply plugging them in.

It's a damning indictment not only the mining machine industry, but of BitCoin itself.
posted by seanmpuckett at 4:22 AM on May 15, 2013 [58 favorites]

People didn't just happen to get the idea of wanting to use their country's paper money. It's enforced by law.

So far as I understand it, that's not actually the case (for example, in a lot of places you can't pay your rent in cash). It's the type of money the government accepts for taxes, fees, land purchases, etc., and that turns out to be a pretty good form of encouragement.
posted by reprise the theme song and roll the credits at 4:27 AM on May 15, 2013

It's required by law to accept paper currency to pay off debts, as well.
posted by empath at 4:30 AM on May 15, 2013

the governments have a freer hand in going all-out in their actions, what with having no regulations to constrain their own actions either.

Given that they appear to have gotten a court order for this, they are constrained by regulation and appear to have obeyed them.
posted by jpe at 4:30 AM on May 15, 2013 [1 favorite]

I laugh just thinking about it. The manufacturers of these machines are placing a bet with their customers: they bet they'll make more money selling the machines than they would by simply plugging them in.

There are energy costs as well. From what I understand, bitcoin prices like most other commodities tend to fluctuate around the marginal cost for creating them (ie the energy cost).
posted by empath at 4:31 AM on May 15, 2013

they bet they'll make more money selling the machines than they would by simply plugging them in.

If they have the ability to manufacture a lot, they could make more from the markup than the customer does from the machine. Economies of scale mean they don't pay nearly so much to manufacture a given machine as the customer does to buy it.

It's pretty difficult to have a sober conversation about bitcoin when it's polluted with damning indictments based on ignorance of economics.
posted by LogicalDash at 4:37 AM on May 15, 2013 [4 favorites]

I would guess they do in the US, because the US uses US$, but elsewhere then presumably they consider it in terms of whatever the exchange rate is with the local currency.
posted by biffa at 4:39 AM on May 15, 2013 [1 favorite]

As MeFi's Own™ AccordionGuy noted, not merely did the electricity used to calculate his BTC cost more than he mined, but also the ad revenue from the blog post about this discrepancy dwarfed his BTC earning.

Like the PGP and CAcert webs of trust and all their associated drama, the mathematics might be perfect, but everything falls apart on the societal side.
posted by scruss at 4:41 AM on May 15, 2013 [6 favorites]

people seem so mad about people being able to buy drugs on the internet
posted by This, of course, alludes to you at 5:04 AM on May 15, 2013

Well, buying drugs is illegal, Internet or no. I think mostly people are amused by neckbeards and their high tech beany babies.
posted by empath at 5:13 AM on May 15, 2013 [8 favorites]

I laugh just thinking about it. The manufacturers of these machines are placing a bet with their customers: they bet they'll make more money selling the machines than they would by simply plugging them in.

Do you know that most of the people who made money in the big gold rushes of the 19th century never mined a bit of gold? They were the folks who sold mining gear to the prospectors, and who, of course, sold entertainment to the miners who'd found gold.
posted by eriko at 5:15 AM on May 15, 2013 [4 favorites]

whats a neckbeard
posted by This, of course, alludes to you at 5:16 AM on May 15, 2013

This, of course, alludes to you: "whats a neckbeard"

5 bitcoins, same as in town.
posted by Bugbread at 5:28 AM on May 15, 2013 [23 favorites]

He bloody well is not!
posted by wilful at 5:29 AM on May 15, 2013 [2 favorites]

I'm all for buying drugs, but if it can be used to support one type of criminal funding it can be used to support others I would not be so enthusiastic about.
posted by Drinky Die at 5:29 AM on May 15, 2013 [1 favorite]

If you go to Ghana to dig for gold, as many people do, you'll find lots of Africans and some Western prospectors/entrepreneurs/you-know-the-sorts up to their danglies in mud - and the Chinese guys selling them rock crushers and spades.

I'm watching the whole bitcoin/digital currency thing quite closely, for a few reasons - there's a lovely little mini-frenzy going on with VCs (I may sell them some spades), the backstory to bitcoin is utterly fascinating as it's impossible to find out who or what invented it, and the consensus among my finance friends is that it's all hilarious. Which it is - it's brought some truly world-class wingnuts under the microscope.

Thee's also the underlying nugget that bitcoin works and, as far as I can tell with my informed layperson's mining helmet on, it will carry on working. In that respect, it's quite like gold as a medium of value; the atomic physics is good no matter what layers of fruitcake are built on top. There's not much I'm confident about in the future of all this, except that something like bitcoin will turn into an integral part of the digital landscape.

And if you thought the battles over content copying were fierce, you ain't seen nothing yet. If you want to find the quintessential equation of special interest backed by power, the state and its money is it. In that respect, the bitcoin experience may be the catalyst for the true world government that so many of its proponents hold as Satan incarnate.

What's not to love?
posted by Devonian at 5:36 AM on May 15, 2013 [11 favorites]

Jenga: "Buying drugs is OK but you're opposed to all forms of payment? Or is there a kind of payment that can't be used to fund criminals?"

I'm going to go out on a limb and guess that Drinky Die is not opposed to all currency, nor does he/she believe there is a criminal-proof currency, but he/she believes that bitcoins are easier to use for criminal funding than other currencies, and therefore is not as enthusiastic about them as he/she is about other currencies.
posted by Bugbread at 5:45 AM on May 15, 2013 [2 favorites]

In that respect, the bitcoin experience may be the catalyst for the true world government that so many of its proponents hold as Satan incarnate.

What's not to love?

burn all empires imho
posted by This, of course, alludes to you at 5:53 AM on May 15, 2013 [1 favorite]

I laugh just thinking about it. The manufacturers of these machines are placing a bet with their customers: they bet they'll make more money selling the machines than they would by simply plugging them in.

It's a damning indictment not only the mining machine industry, but of BitCoin itself.

You could kind of say the same thing about building nuclear power plants or any other business that involves manufacturing something that has a high upfront cost but produces a steady income that should eventually pay for itself. But anyway spending a bunch of money on BitCoin mining can be a bad financial idea without it being an indictment of BitCoin in general, the point is that it takes a certain amount of computing horsepower to keep it running and if more people than necessary fight over the reward for keeping the system running it doesn't really matter.

If they're really trying to operate some brave new world of monetary freedom, then they should go ahead, detach the currency from the USD.

A lot of people involved in BitCoin are nuts, but the reason I'm rooting for BitCoin to continue is that currently payments on the Internet are pretty much dominated by credit card companies and PayPal. The point is that you have some kind of value in dollars or euros or whatever and want to exchange it online with whoever, and there's not a great universal system for doing that. It's technically possible to have a decent cash-like system of money transfer on the Internet and BitCoin is one of the few actual attempts at doing it. If the US government rolled out a great e-cash system and I never had to deal with Visa or PayPal again I would start using it tomorrow, but that's not going to happen any time soon so I can only hope that BitCoin makes a big enough dent in the status quo that something has to change.
posted by burnmp3s at 5:56 AM on May 15, 2013 [1 favorite]

I bought bitcoins as part of my reaction to being unable to use a credit card to contribute to Wikileaks.

Look at Bitpay.com if you want to see how quickly this alternative currency is being adopted by legitimate businesses. They have surpassed silkroad in volume. I am pretty sure, but not positive, they pay their rent in bitcoins too.
posted by surplus at 6:15 AM on May 15, 2013

Please correct this proposition if I misunderstand:

It is logically possible that I could fill a room with top-of-the line gear specifically designed for Bitcoin mining, run it for a year, and never get a single Bitcoin becase of plain old bad luck/mathematical probability.
posted by DWRoelands at 6:20 AM on May 15, 2013

If they're really trying to operate some brave new world of monetary freedom, then they should go ahead, detach the currency from the USD.

This is one of the most nonsensical statements on the thread. I think you should look up how floating currency exchanges work. Bit-Coin is only as "attached" to the USD as any other currency that is currently tradeable for USD - ie like Euros, Sterling, Yen, Australian Dollars,.... and the list goes on and on and on.

You mean it shouldn't be tradable/exchangeable for USD by oridinary people? Like china keeps the the Renminbi pretty locked down by controlling all inflows and outflows of the currency. hmm..
posted by mary8nne at 6:34 AM on May 15, 2013 [2 favorites]

It is logically possible that I could fill a room with top-of-the line gear specifically designed for Bitcoin mining, run it for a year, and never get a single Bitcoin becase of plain old bad luck/mathematical probability.

Possible, but very unlikely. Whether you'd make back enough to pay back the cost of the electricity to run it is going to be down to the volatile exchange rate (and how quickly you'd want to cash them out) - but there's a fairly good chance you won't. Getting back the cost of the equipment on any reasonable timescale is also going to be very tough, especially as we're now in the era of custom built ASICs that drastically outperform general purpose gear such as high end graphic cards, which at least could be used for other things or resold.

Unless you're already heavily invested in bitcoin mining, or have someone else to pay the electric bill, getting involved in mining now is a bit of a mug's game - there are less risky ways of getting better returns.
posted by ArkhanJG at 6:34 AM on May 15, 2013

The manufacturers of these machines are placing a bet with their customers: they bet they'll make more money selling the machines than they would by simply plugging them in.

This is dead-on. It is exactly, exactly like the companies that run gold advertisements on Glenn Beck. "Gold is growing ever more valuable! You should buy some! And we just happen to be unloading all of ours, because gold is a sound investment that we are divesting ourselves of, for some reason!"
posted by Pope Guilty at 6:49 AM on May 15, 2013 [15 favorites]

However -- what happens when bitcoin reaches end-of-life and you can't mine any more? What incentive would their be to keep 'mining'? Or when the difficulty gets so high that the cost of mining out-paces the value of the coins?

The mining lottery pays out in two ways. First your transaction may contain a small bounty to prioritize its inclusion into the next block. The winner of the mining lottery gets those coins. The second part of the mining lottery comes from new coins that are generated as each block is mined. The design of the game is that bounties/transaction fees will replace the original coin creation coins over time. So even if all coin a have been created, the bounties will still provide an incentive to mine coins

The difficulty to mine a block rises and falls based on the rare at which the network generates blocks. So if more computing power comes into the system the difficulty grows, and as it lowers the difficulty falls.

One theoretical problem for bitcion is that it relies on a cryptographic hashing algorithm to maintain the block chains. The hashing algorithm, sha-256 iirc, is also used to show proof of work. Other hashing algorithms such as MD5 have been found to have vulnerabilities. The Bitcion community admits that this might be a problem but suggest they could switch to a new alorithm if needed. IMO the switch to a new algorithm will be very difficult and damaging to the btc economy. Transactions could be disrupted for days and there is a possibility that previously included blocks could be compromised.
posted by humanfont at 7:01 AM on May 15, 2013

I would have thought the Namecoin block chain better suited to that purpose than the Bitcoin one.
posted by flabdablet at 7:33 AM on May 15, 2013

Bitcoin as a publishing channel for illegal content

Interesting. What has prevented spamming of the Bitcoin blockchain?
posted by surplus at 7:35 AM on May 15, 2013

It is logically possible that I could fill a room with top-of-the line gear specifically designed for Bitcoin mining, run it for a year, and never get a single Bitcoin becase of plain old bad luck/mathematical probability.

That's part of the reason why mining pools exist (although it's mostly for the other end of the spectrum, people who do not have a lot of specialized mining machines). The concept is that a lot of people all mine together and if any of them get lucky then the reward is shared within the group.
posted by burnmp3s at 7:39 AM on May 15, 2013

they could theoretically steal all of the bitcoins

No. This is a common misconception. Even if the network was controlled by a single entity, they would not be able to steal any of your coins.

The risk with a majority controlling the network is instead that they can mess with which transactions goes through, and spend some of their own money in one way, and then spend that same money in some other way. But your coins are untouchable.
posted by ymgve at 7:43 AM on May 15, 2013

It would be an expensive and pointless project to take over the network just to destroy it. Maybe if Bill Gates gets really pissed off at Bitcoin for some reason.
posted by Drinky Die at 7:47 AM on May 15, 2013

Or a government. People will stop mining when the bit coins can't be mined anymore, though. Them Moore's law makes it easier and easier to reproduce the work.
posted by empath at 7:53 AM on May 15, 2013

The system is self-adjusting, so the rate of coins mined was set in stone back in 2009 when the network launched. The gory details are here, but basically 25 new coins are generated every 10 minutes no matter how much hardware you throw at it, until 2016 when the reward halves.

Moore's law isn't really relevant, because in mining all that matters is that you are able to keep up with your fellow miners.
posted by ymgve at 7:56 AM on May 15, 2013

If there's an Achilles heel, it's that the block chain's already massive and growing at a fair whack. Getting onto the network is already a significant undertaking.

I personally don't think that's a problem, I think it's the saviour of the currency - in the long run, most people won't manage their own wallets. In other words, there's a use case for bitcoin banks. And once you've got banks, you've got entities that can provide all the mechanics (like lending) that a real currency needs.

(And some of the stuff that's hanging out in the code, but nobody's implemented yet, looks amazing. You can tie physical objects into the block chain, and prove ownership. Lots of different transaction types that nobody's using, too.)
posted by Leon at 8:18 AM on May 15, 2013 [1 favorite]

How do you tie physical objects into the block chain?

A vague googling turns up things like these coins, but they basically look like super expensive scratch cards to me.
posted by Just this guy, y'know at 9:17 AM on May 15, 2013

Getting onto the network is already a significant undertaking.

If you're on dialup or a capped broadband connection maybe. My cheapest-cablemodem-time-warner-will-sell-me took ~2 days to sync from scratch on my mac and required no effort beyond installing the client.

Bitcoin has almost the same semantics as cash. If someone robs your bank you're covered because the government will make you whole, if someone steals the cash under your mattress you're screwed. In reverse though if the bank decides today is a holiday and you can't get any money you're screwed whereas cash is still right there under your mattress.

If you use a credit card or check or wire to buy something you need a third party (or several third parties) to agree that the transaction has happened, that it was legit, etc. It's nice to be able to chargeback when fraud happens but, again, you need those third parties to agree and if you're (say) Wikileaks they can just flagrantly say screw you. With cash there are no third parties, you just drop some bills on the table and walk away. Ditto bitcoin, as long as the network clears it the value has been transferred without any oversight and no potential for chargebacks.

These things make it useful for buying illegal things, yes, in just the same way as cash is useful for those things.
posted by Skorgu at 9:27 AM on May 15, 2013

So coming back to the original story: Ars Technica has more info on the Dwolla shutdown.

So I was wrong: it wasn't a bad customer, the DHS was going after MtGox for "money transmission" without a license. MtGox fucked up.
posted by dragoon at 9:35 AM on May 15, 2013 [3 favorites]

Ars Technica has obtained more information from the DHS, including the warrant. It appears that the Feds are going after Mt.Gox for operating a currency exchange without a license.
posted by humanfont at 9:39 AM on May 15, 2013

Can I just say, the notion of a stateless currency is fairly questionable, if not entirely a big blarney? You're sitting in your own country, whose borders are secured by that country's armed forces, your rights are secured by that country's laws and police, your job is a product of that country's economy, your health from their health care system, you're using that country's roads, buildings, power, IT infrastructure, water, refuse disposal... But somehow you're producing coins in a stateless currency.
posted by newdaddy at 10:01 AM on May 15, 2013 [2 favorites]

This reminds me of nothing more than the Intrade shutdown. New and hot company operating with lots of love from the tech side, predicted to be a game-changer and away from the control of States...except there's something shady going on. Standard regulated-market enforcement steps in.
posted by Lemurrhea at 10:05 AM on May 15, 2013

To operate as a currency exchange between bitcoin and US dollars, that would presumably mean bitcoin would have to be an actual currency recognised by the legal system as such; the warrant refers to it as a 'crypto-currency' - as opposed to a barter mechanism, say. That doesn't seem like a slam dunk to prove, though I expect the DHS to have a good go at it.

That Mt.Gox is actually registered in Japan may also cause some jurisdictional issues on first blush, though they can presumably just nail the US subsidiary, Mutum Sigillum that owns the bank account and Dwolla account.

Though it looks like they're going after Mt.Gox for unlicenced currency transmission - i.e. sending US dollar funds on behalf of US customers (specifically, a confidential informant in Maryland) without being registered with a money transmitting licence, which wasn't done when the Wells Fargo account was setup.

So money destined for US sellers of bitcoins goes from Mt.Gox's Japanese bank account to their US bank account at Wells Fargo; into their Dwolla account; via Dwolla to the recipient's Dwolla account, then into their own bank account. Presumably they can nail them for the step of transferring customer's money from their Japan account to their US bank account, as well as to Dwolla, seize and keep the funds in the Dwolla account, and their Wells Fargo account too - which got raided on May 9th according to the warrant. Plus possible fines and jailtime for Karpales (owner of Mt.Gox and Mutum Sigillum) assuming they can lay their hands on him.

Wonder how much Mt.Gox were keeping in the US accounts?
posted by ArkhanJG at 10:12 AM on May 15, 2013

Bitcoin has not been shutdown. Recent information provided by the US Government indicate that there are legal ways to run an exchange with p2p currency. MtGox failed to comply with those regulations. Furthermore they lied in various forms they were required to fill out when setting up their accounts about the nature of their business (as indicated in the Arstechnica link above).
posted by humanfont at 10:33 AM on May 15, 2013 [1 favorite]

disillusioned: Really eager to hear what on earth their rationale is for seizing their Dwolla account in this case. Mt. Gox isn't involved in anything illegal at all, but it's nice to see DHS threatened enough to go after one of the funding vectors.

Assuming that they obeyed the laws regarding registration as a Money Services Business, filed and paid all taxes on profits realized, and so forth... none of which do we know the facts on.

Jimbob: Well, this is a non-story, then, since no-one measures the value of bitcoins in USD

Not true , as has been discussed many, many times here.
posted by IAmBroom at 10:42 AM on May 15, 2013

humanfont: Furthermore they lied in various forms they were required to fill out when setting up their accounts about the nature of their business (as indicated in the Arstechnica link above).

Oops, while I was getting ready to post humanfont provided the evidence. Lying on a federal form about a financial institution = big fucking trouble Right Now (unless you are a multi-billion-dollar bank, of course).
posted by IAmBroom at 10:45 AM on May 15, 2013

I think people now are buying it for combinations of these three reasons:
Because they are libertarian with regard to what you should be able to buy.*
Because they don't trust governments not to devalue currency at any time via Central Banks.*
Financial speculation.†

You forgot "because people have these shockingly powerful computers on their desks already, and so by installing and running a bit of software they might actually make a bit of cash (although they are thinking of their lack of startup costs, but not necessarily taking electricity costs into account)"
posted by davejay at 10:48 AM on May 15, 2013 [1 favorite]

whats a neckbeard
posted by This, of course, alludes to you at 5:16 on May 15 [+] [!]

Eponysterical, probably?
posted by palbo at 1:15 PM on May 15, 2013 [1 favorite]

...and this, children, is why you should keep all your bitcoins in a Mason Jar buried in your backyard.
posted by J.W. at 1:39 PM on May 15, 2013

You mean it shouldn't be tradable/exchangeable for USD by oridinary people?

My point, although I expressed it poorly, is that bitcoin does not have any value of its own, apart from its exchange value. Yes, you can buy things with Bitcoins directly. But in the recent bubble, the prices of those things varied as rapidly as the prices of Bitcoins did - the people accepting Bitcoin for payment weren't interested in the intrinsic value of Bitcoins, they were just interested in the exchange rate. People own Euros because they are useful as Euros, and price variations due to exchange rate flux with the USD are slow and minor. People own Bitcoins purely because they are worth something in USD, and price fluctuations are massive.
posted by Jimbob at 2:21 PM on May 15, 2013

I guess what I'm saying is, Bitcoin looks an awful lot like the Zimbabwe Dollar - except unlike the Zimbabwe Dollar, there are a pile of people ideologically attached to using it, rather than running away from it as fast as possible.
posted by Jimbob at 2:26 PM on May 15, 2013

@palbo

i was not calling him that

one of the bad things about this thing is you can't turn it off
posted by This, of course, alludes to you at 2:56 PM on May 15, 2013

Standard regulated-market enforcement steps in.

yeah, just like it did back in 2009 which is why there's no recession now
posted by This, of course, alludes to you at 2:58 PM on May 15, 2013

I guess what I'm saying is, Bitcoin looks an awful lot like the Zimbabwe Dollar - except unlike the Zimbabwe Dollar, there are a pile of people ideologically attached to using it

You might want to re-think that parallel.

What went wrong with the Zimbabwe Dollar was hyperinflation, caused by a government that seemed to think nobody would notice if it just printed money when it needed some to spend.

Bitcoin is inherently deflationary because the design of the network puts hard limits on both the rate at which BTC can be issued and the total number of them that can ever be issued. That builds in a reward for buying and holding BTC if it survives as a working currency; BTC promption is driven not so much by ideology as self-interest

There's an inbuilt tension between the rewards for hoarding BTC, thus keeping them out of circulation, causing further deflation and increasing the trade value of the hoard, and for keeping enough of them circulating to allow use as a currency, which is the only thing that actually makes them desirable in the first place.

Your point about BTC having no inherent value applies equally to every other currency in widespread use, so it's not really an argument against BTC per se.
posted by flabdablet at 7:44 PM on May 15, 2013

Yeah, Bitcoin indeed experienced a period of insane hyperdeflation - which, just like hyperinflation, is no way for a reputable currency to behave. As you say, if everything is going cost less tomorrow than today, why do anything with my coins? I'll just wait and spend them tomorrow. Actually no, I'll wait until the day after, they'll buy me even more then...

Look, I see its value as international online trading tokens, as a way to avoid Visa and Paypal and the like. But that will never take off if the value of a coin can swing from $10 to $200 to $100 in the space of six months with nothing driving the swings except currency speculation. It's just not trustworthy.
posted by Jimbob at 1:07 AM on May 16, 2013 [1 favorite]

with nothing driving the swings except currency speculation.

Well the energy costs of mining bitcoins is primarily what is driving the swings.
posted by empath at 1:29 AM on May 16, 2013

Energy costs have swung it between $11 and $266 over the past six months?
posted by Drinky Die at 4:44 AM on May 16, 2013 [1 favorite]

Mining difficulty has gone up that much, yes. As more machines come online, the cost of mining new bit coins gets higher.

There's a lot of speculative froth, but it's not completely irrational. It only makes sense that the cost of buying coins can't be too much higher than the cost of mining them, or people would just mine them instead of buying them.
posted by empath at 5:53 AM on May 16, 2013

Yes, but the cost is $114 right now. Did the energy requirements go down again?
posted by Drinky Die at 6:01 AM on May 16, 2013 [1 favorite]

The only value volatility BTC has is if you value it in terms of state issued currencies.

So those cupcakes you can buy with Bitcoins in San Fransisco - during the recent period of hyperdeflation, did they maintain their Bitcoin price, or did their Bitcoin price swing back and forth in concert with the Bitcoin:USD ratio? What about the wares on Silk Road?
posted by Jimbob at 2:20 PM on May 16, 2013

"Gold is growing ever more valuable! You should buy some! And we just happen to be unloading all of ours, because gold is a sound investment that we are divesting ourselves of, for some reason!"

This is exactly the same reason that it's impossible to buy a stock when its price is increasing. After all, nobody would sell if it will be worth more tomorrow, right?

/me owns no gold
posted by fader at 3:09 PM on May 16, 2013

The people selling stocks aren't telling you that the dollar is worthless, and then asking for dollars for their stocks.
posted by empath at 4:19 PM on May 16, 2013 [2 favorites]

I don't have the vocabulary to express what I'm trying to say. So I'll try and break it down into dot points.

* Proponents of Bitcoin have a libertarian ideology that promotes Bitcoin as a currency in its own right, not just as tokens exchangeable for USD or Euros or whatever. This ideology also includes promotions of ideas like the lack of central banks etc. that I don't agree with, but that's okay.
* If it were a independent currency in its own right, then you could buy things with it based on its own value, rather than its value in USD. Someone online is taking payments in Bitcoins for, say, webhosting. 1 BTC per year. But say the exchange rate of BTC to USD is increasing exponentially (as it did last month). Therefore, the webhost has to start charging 0.5BTC the next day for hosting. And the next day they have to change their price to 0.25BTC per year.
* This is indicative that they aren't interested in collecting Bitcoins in exchange for their products. They're actually interested in collecting USD, and using Bitcoins as convenient online tickets to exchange into USD.
* If they actually wanted Bitcoins, then their prices would remain much more stable. They wouldn't be rushing out to check the exchange rate and adjust their prices every few hours.
* Trustworthy currencies don't do this. I'm in Australia. The value of the AUD varies in relation to the USD, sure. But this doesn't, on an hour-to-hour, or even month-to-month timescale, effect the price I pay for a loaf of bread in my local supermarket. My supermarket isn't pricing their bread based on how many USD it is worth.
* Therefore, the one actual useful purpose of Bitcoin - as a useful, international online payment system, is thwarted. It is going to be a pain to know how many Bitcoins I need in my wallet to buy the things I want, because prices are changing rapidly based on exchange rate to USD, and that exchange rate varies based 80% on pure speculation.
posted by Jimbob at 5:47 PM on May 16, 2013 [1 favorite]

Yeah, this whole "bread purchasing" thing is kind of pie in the sky. Do you have any more down to Earth examples of currency use?
posted by Drinky Die at 8:40 PM on May 16, 2013 [3 favorites]

If it were a independent currency in its own right, then you could buy things with it based on its own value, rather than its value in USD.

Depending what you're trying to buy, this isn't true of the Euro or the USD either, so why should it be true of BTC?

For all three of those currencies, there are some (but not all) things that can be purchased with that currency without regard to exchange rates with other currencies.

And for all three of those currencies, there are some (but not all) things that can only be purchased for an amount dictated by an exchange rates with another currency.

The difference is, the USD is used by an economy of 300 million people for general day to day stuff, plus some parts of other economies, and has been in use for centuries, and has vast infrastructure in place to facilitate that use, so the former category (things for sale denominated in USD) is vast for the USD, and dwarfs BTC. But that's a difference of massiveness rather than type.

Even with the massive establishment of the USD, there are some things (including some legal goods, just to head that off at the pass ;) ) that you can't buy in USD, but can buy in BTC, and you wouldn't claim that the value of the USD depends on how much BTC it can buy. But really, the value of the USD does depend on that... if the thing you are trying to buy is only sold for BTC, as some things are.
posted by anonymisc at 11:09 PM on May 16, 2013

This interview with the Eve economist on money is pretty interesting.

RPS: So, for those of us who don’t really understand economics very well – what is money?

Dr Eyjó: Money is, we could say, a medium of exchange and somewhere we can store value. If you want to go back in history and think about why people would invent money, imagine that you were a farmer somewhere up in the valley and you needed to go down to the shore and exchange your products for some fish, okay? You have to take your livestock down there, your livestock might die on the way, you will have to feed them, it’s expensive and so on. Once you meet the fisherman, you have to get the fish and he can only really pay you in fish, so you get more fish than you can actually eat yourself before the fish rot. But if the fisherman could sell a lot of the fish to other people and get paid in ‘cash’, he can then pay the farmer in cash and the farmer can then walk back home just with the cash because he has his value stored in something that’s easy to keep and doesn’t decay much over time. This is why gold was so important as a storage of value because gold does not decay and it’s a limited supply.

RPS: But now we just have paper and numbers in a computer and it seems very ethereal.

Dr Eyjó: Maybe it does, maybe it does – but it’s the same system. You just have to have control over the number that you allow to go into the system, and that’s the trick. No governments have, in the long run, been able to withstand the temptation of printing more money. It’s a really, really difficult temptation to withstand.

RPS: I had someone say to me once that ‘money is fiction.’ Is money real? Have I been living a lie?

Dr Eyjó: No, money is real – absolutely real. Because what you can do today is you can go out there and acquire goods with that money. But it’s still – as you said yourself earlier – it’s still just a number, and the question about what the number is is about how [many] total ‘numbers’ there are in the system. So you have to be carefully controlling the amount of money that you put in the system because the amount of money has to be in good proportion to the amount of goods and services and everything that’s in the system.

RPS: Okay, with that in mind, is ISK in EVE any different from real world money?

Dr Eyjó: No. No, there is absolutely no difference. Except for the fact that we don’t allow that money to exit EVE.

RPS: So, ISK in-game is real as well?

Dr Eyjó: [nods]

posted by empath at 2:41 AM on May 17, 2013

I am not am accountant or a tax lawyer, the following is my undersranding based on drinks with various individuals who were not offering me professional advice at the time. For the sake of argument let us assume that a more mainstream business or professional looking to avoid possible jail time for tax fraud.

It appear that the US government has decided that Bitcoin is a currency and that they will just treat it as such for purposes of taxation and regulation. This is what got MTGox in trouble, because they didn't operate under the existing FINCEN regs.

The volitility if of currency makes it pretty ugly from a tax perspective. Suppose you are a business and you sell cupcakes in Bitcoins. If you charge say .001 btc per cupcake what are you legally required to report as revenue for each cupcake. For a business operating in the US, you just immediately convert the transaction to US dollars (aka the functional currency). This also means that you account at MtGox may be treated as a foreign bank account and subject to all the disclosures you have to make.

Suppose you are being paid as a contractor in BTC while residing in the US. When you are paid you must immediately calculate your income in dollars, even if you don't exchange the btc into dollars. Lets suppose you agreed to do a job for 50btc and at the time you receive the btc it is $100/btc. From the IRS perspective you just made $5000 in income. Suppose you wait until April of next year to convert btc to dollars and settle your taxes which are about $2000. If you sell your coins for $200/btc you will end up with a future tax liability on the difference between your cost basis and sales price which would be ordinary income unless you filed additional paperwork with the IRS and had other Bitcoins you'd held for more than a year. In that case some of the transaction might qualify for treatment as a long term capital gain. In any case you would owe more tax in the next year on this now two year old transaction.

Consider an alternative where the price has fallen and you sell your Bitcoin at $20/btc. Now you still owe $2000 but you only have $1000 in Bitcoin. The good news is you will be able to report a loss on the current year on that transaction. The bad news is the profit from last year still stands so you can't offset last years profits with the loss this year. So you will need to find another $1000 to pay the IRS.

To limit tax risk you will probably want to convert some portion of your earnings as close to sale as possible in order to have funds set aside to pay taxes. You will also have to consider that expenses booked in Bitcoin would also need to be converted to dollars at the time of the transaction. This limits the ability of btc to act as a seperate economy. Even if you sell cupcakes for .001 btc and buy supplies for .0005 btc, from the US gov perspective each transaction is deprived to dollars based on btc value at time to transaction. This could significantly affect tax liability for the business. Managing a business sucessfully in the face of this variability would be extemely challenging, until or unless btc becomes substantially less volatile in price.
posted by humanfont at 7:11 AM on May 17, 2013 [2 favorites]

Reuters: U.S. authorities seize accounts of major Bitcoin operator
posted by Golden Eternity at 1:37 PM on May 17, 2013

That is confusing and scattered.

Okay then. What humanfont said. I don't know what's so confusing about not trusting an unregulated currency subject to massive, unexplainable price swings, though.
posted by Jimbob at 3:34 PM on May 17, 2013

LogicalDash: "they bet they'll make more money selling the machines than they would by simply plugging them in.

If they have the ability to manufacture a lot, they could make more from the markup than the customer does from the machine. Economies of scale mean they don't pay nearly so much to manufacture a given machine as the customer does to buy it.

It's pretty difficult to have a sober conversation about bitcoin when it's polluted with damning indictments based on ignorance of economics."

Your statement and seanmpuckett's statement are not in conflict. He is stating that the manufacturer believes they will make more money if they sell the BitCoin machine than they will if they merely use it themselves. They could use that same economy of scale to make an army of cheap BitCoin machines for themselves. Instead, they are selling them, because they will make more money that way.

Any way you look at it, it's highly likely that the amount of money the machines might generate is less than the profit this company gets from manufacturing and selling them.
posted by Deathalicious at 1:45 AM on May 18, 2013

Is it possible that this company values the wide distribution of their mining machines over short-term profit?
posted by MoTLD at 2:36 PM on May 19, 2013

The mining machine manufacturers don't have the capital to make the machines unless they are selling them. They need the cash from the miners to purchase the materials and pay the various factories.
posted by humanfont at 4:12 PM on May 19, 2013

You think it should be detached from the USD, whatever that means and then you keep coming back to the price of it as expressed in BTC. I don't care. The price has mattered exactly once to me when I made a wager here the year before last.

As I suggested, I got my terminology wrong, with the term "detach". I think you're in the minority, when it comes to not caring what BTC is worth in USD, that's all. I've followed the exchange rate closely, owing to my presence on an IRC channel that will remain unspoken of, that has a bot that does the conversion. Everyone mining bitcoins was watching the exchange rate obsessively. And so I got the impression that people care about BTC, and buy the hardware, and make the calculations, based on its USD exchange rate.

I'm also a statistician, of sorts, and I spent some time trying to develop a model to simulate/predict BTC-USD exchange rates. And it wasn't possible, in any way. The exchange rate wasn't influenced by any real-world factors, like interest rates, export balance, productivity. There was just an exponential increase, based purely on speculation (and various hacking dramas), then a sudden unpredictable dive, then a restoration to a reasonably stable $110-$120 (which has happened while this post has progressed). Some kind of stability within reasonable margins is fine with me. I don't buy all the libertarian bullshit, but if 1 BTC = 100 USD, then that's great. I might have the confidence to change some money into BTC to order some ditchweed. Let's see if it keeps up for any time. My confidence in BTC has, indeed, moved over time with this thread. I started off with a bit of light schaudenfreud, escalated to terse opposition, and now I'm settling down into vague acceptance.

I continue, however, to have reservations about the algorithm. At that point in the future, all BTCs will be handed out, and we will be stuck with...what is it, 21 million coins? Forever? But I guess that is surmountable. I just spent a week in Cambodia recently, where $1USD is worth 4000 Cambodian Rials, and people seemed to get along okay.
posted by Jimbob at 8:33 PM on May 19, 2013

How to theoretically steal any Bitcoin.
posted by humanfont at 9:18 PM on May 19, 2013 [1 favorite]

in the future, all BTCs will be handed out, and we will be stuck with...what is it, 21 million coins? Forever? But I guess that is surmountable.

The way the network is supposed to cope with this case is by allowing BTC to continue to deflate; the claim is that such deflation is supportable for the medium term because the network can process transactions in increments of 0.00000001 BTC.

In fact I suspect that the current BTC deflation is already due to BTC being hoarded at greater than their creation rate, and that the BTC exchange rate is already set by a small minority of hoarders in exactly the same way that the dollar exchange rate is set by the Fed: by controlling the money supply. The fact that the network creates BTC in a decentralised way is almost completely irrelevant given that BTC, like every other currency and every other commodity, is traded in a free market whose operation inherently results in the concentration of capital via preferential allocation of scarce resources to the wealthy.

As you've noted, the BTC exchange rate pattern is one of exponential increase followed by sudden crashes involving huge trade volumes. That's exactly the pattern I'd expect from a market dominated by a small number of highly capitalised players who have yet to learn the subtle political skills of the truly wealthy; there's a pleasing parallel there between the volatility of the new currency and the virulence of new diseases not yet well adapted to their hosts.
posted by flabdablet at 10:14 PM on May 19, 2013

This week's Bitcoin related hilarity is Litecoin.

If Bitcoin is too heavily mined for you and requires too much CPU power, try Litecoin!

Which big advantage over Bitcoin is that "It is based on the Bitcoin protocol but differs from Bitcoin in that it can be efficiently mined with consumer-grade hardware" because no one uses it yet, so get started mining today, before the ASICs come out!

Before someone else makes yet another cryptocurrency. And another. And another.
posted by seanmpuckett at 5:20 AM on May 20, 2013

Still others address other rather trivial concerns like the energy efficiency complaints and the whining about early adopters getting more than their fair share.

I don't think it's whining to point out that bitcoins are a basically a pyramid scheme.
posted by empath at 6:43 AM on May 20, 2013

I'd personally appreciate it if you'd spend less time trying to manage the thread, Jenga.
posted by seanmpuckett at 7:16 AM on May 20, 2013

I think bitcoin is interesting to think about as a concept and implementation, but I don't think it is a good investment, nor a good currency. There is no conflict there.
posted by empath at 7:17 AM on May 20, 2013

If you're on dialup or a capped broadband connection maybe. My cheapest-cablemodem-time-warner-will-sell-me took ~2 days to sync from scratch on my mac and required no effort beyond installing the client.

Skorgu: It's a bit late to reply, but that was my point: it took me about two days last time I created a wallet, too. And yet the block chain is still less than 8Gb in size (a ten minute download here). The rest was CPU time. Imagine the barrier to entry after ten years of serious trading volume.

I suspect the system is so unwieldy that most transactions will move to trusted third parties eventually - which is great because, hey, fractional-reserve banking. Probably wallets on mobile devices will be the first to be replaced.
posted by Leon at 3:01 PM on May 20, 2013

Is it possible that this company values the wide distribution of their mining machines over short-term profit?

No.

Dismissive much?

I was serious. A large-scale fishing operation must mange the fishery. Some will overfish and destroy their own livelihood, hence the need for some regulation, or at very least cooperation. But some are run by responsible folks who don't need regulation to temper their own actions, but might need it to level the playing field by restricting the irresponsible.

A responsible bitcoin mining operation never wants anyone to have more than 50% of the network's hashing power, including themselves. Several mining pools have neared the 50% mark and have voluntarily restricted themselves. Is it inconceivable that a company could likewise recognize the long-term benefit of properly managing the resource that said company depends upon for its very existence, especially in a small economy where reputation still matters?

Also, what humanfont said.
posted by MoTLD at 3:30 PM on May 20, 2013

Liberty Reserve shutdown by Feds. The US has shutdown another virtual currency operator and arrested many of the individuals involved. I think this may provide a template for how they may go after MtGox and other similar Bitcoin exchanges and mining groups.
posted by humanfont at 9:41 PM on May 28, 2013

virtually all of [Liberty Reserve's] business was related to suspected criminal activity

Thank goodness this doesn't apply to Bitcoin. Most, maybe, but not virtually all. ;)

Seriously, though, this is kinda the rationale behind bitcoin. It's the bittorrent to LR's Napster.
posted by MoTLD at 9:50 PM on May 28, 2013 [1 favorite]

It's the bittorrent to LR's Napster.

Except it's vulnerable whenever someone exchanges the bitcoins for dollars.
posted by empath at 10:29 PM on May 28, 2013

Oh, there's definitely chokepoints and vulnerabilities in Bitcoin, especially the interface to old school currencies like empath mentions, but it's pretty robust overall.

Bittorrent's got its weaknesses, too, but they haven't shut it down yet despite years of trying. Partly because it's open-source and distributed, and partly because it has legit uses despite widespread illegal use. Bitcoin also fits that profile.

And there are a couple dozen up and coming decentralized cryptocurrencies if BTC fails, and also a variety of exchanges ready to fill the void if Mt. Gox is taken down.

This genie ain't goin' nowhere.
posted by MoTLD at 10:43 PM on May 28, 2013

Bit torrent itself has never been declared illegal. One can use the technology for legitimate purposes. The illegal activity is mostly a matter of civil, not criminal law where the enforcement is left up to the owners of the copyrights.
Banking and currency exchanges are much more highly regulated. Unless exchanges can comply with Fincen and other laws, and obtain necessary permission to operate the US and other governments can come in and shut down the operators. Providers of mining rigs and large scale mining groupd could be dismantled by prosecuting under conspiracy charges. Those actions might not be a fatal blow, but it would have a pretty major effect on the value of Bitcoin. Furthermore wallets and private keys could be confiscated using civil asset forfiture. The government could take your wallet.dat file, then use your private key to transfer the funds to an account they invented and then delete the coins forever. Only 21 million coins will ever be created. Other p2p currencies might crop up; and Bitcoin might remain as a fringe currency; but in this scenario it would never attain the legitimacy needed for mainstream adoption.
posted by humanfont at 12:34 AM on May 29, 2013

Your arguments are sound, humanfont, and all of those are among the chokepoints and vulnerabilities I alluded to. But bitcoin itself has never been declared illegal, either, and I contend that doing so would be about the same as declaring bittorrent illegal, in that they are both just communications networks. If either can be made illegal on its face, we're in big trouble as a free country!

I guess IMO it would be kinda like going after AT&T for passing along fraudulent wire transfers - or pirated music. And there is some very, very convoluted law regarding just that, but yet bittorrent is still legal and operational, as is AT&T.

Also, shutting down an exchange for knowingly facilitating money laundering is pretty different from going after mining hardware makers, since that hardware, like the network, is usable for other purposes, and I'm pretty sure conspiracy requires intent. Now we're going after the cable and fiber manufacturers as well as AT&T, to abuse the analogy a bit further.
posted by MoTLD at 4:10 AM on May 29, 2013

If either can be made illegal on its face, we're in big trouble as a free country!

Regulating currency and interstate commerce is one of congress' main reasons for existing. If they can't regulate or ban bitcoin, they might as well fold up.
posted by empath at 4:17 AM on May 29, 2013 [1 favorite]

Well, it's up to the feds to issue currency, but as I recall there have been quite a few other non-federally backed currencies in legal use in the US, including such things as company scrip and town "coupon" or "voucher" programs. And the prevalence of prepaid gift cards and the like muddies the waters even more.

Now, company towns where only their scrip is legal tender is a different story, and there is definitely fraud and abuse in the gift card industry. Both of these things should be addressed by law, but congress can't just make scrip, gift cards, or bitcoin illegal on their face.

Likewise, congress has not only the power but the duty to regulate banks and exchanges that deal in bitcoin, like any other banks and exchanges. How well they have been doing on that score in recent times is a matter for another discussion... :-P
posted by MoTLD at 12:15 PM on May 29, 2013

Forbes has a somewhat pessimistic, but excellent short piece on how the gov't can shut down things like bitcoin or wikileaks without outright making them illegal.
posted by MoTLD at 12:23 PM on May 29, 2013

I find it amusing that Forbes is trying to paint global financial regulations as some horrible thing imposed upon the world by evil bureaucrats.
posted by humanfont at 1:29 PM on May 29, 2013 [2 favorites]

Let me add something significant to my bitcoin/bittorrent parallel:

Napster was groundbreaking in that people could get their music easily. The industry at the time had no way of providing music easily and also legally, so folks became pirates. When the industry was able to easily shut down Napster, it preserved the status quo. Same with Liberty Reserve, excepting that LR was also just plain sleazy.

Bittorrent was groundbreaking in that people could get their music almost as easily, but it couldn't be shut down. The industry had to attack the ancillary targets instead, the sharers and trackers. When that proved largely ineffective, they were forced to make music available for download easily and legally, and lo and behold, it turned out most folks didn't want to be pirates when given a legitimate alternative. Bittorrent did what Napster was unable to do, in breaking the status quo, or at least hastening its demise.

Bitcoin aims to break the financial industry status quo in a similar way. When the entrenched interests realize they are fighting a battle of attrition by attacking the ancillary targets, they will have to offer whatever it is the public finds appealing about bitcoin that they can't get from the current system. Or the system will have to accept bitcoin or its successor. Or they will outlaw it and fight a War on Cryptocurrencies. I'm sure it will work out much better than the War on Drugs.

Where there's a market, something will fill it.
posted by MoTLD at 12:30 AM on May 30, 2013

MoTLD: But bitcoin itself has never been declared illegal, either, and I contend that doing so would be about the same as declaring bittorrent illegal, in that they are both just communications networks.

That's as legitimate an argument as describing a counterfeiting operation as "just a note-taking apparatus". And the courts would agree. (I'm referring to bitcoin; bittorrent is actually used for communication, of course.)
posted by IAmBroom at 7:14 AM on May 30, 2013

humanfont: I find it amusing that Forbes is trying to paint global financial regulations as some horrible thing imposed upon the world by evil bureaucrats.

Not enough billionaires were involved, so it's not inherently good.
posted by IAmBroom at 7:15 AM on May 30, 2013

And the courts would agree.

I am unaware of any court making any decision related to bitcoin. At the moment there is an investigation into actions of one bitcoin exchange operator.

And what made you bring counterfeiting in as a comparison? But since you did, bitcoin is a communications network like a counterfeiting operation is a print shop. A very specialized print shop, to be sure, but still. Please explain how bitcoin is anything other than a specialized communications network.
posted by MoTLD at 10:48 AM on May 30, 2013

The entire banking system is also an advanced communications network, as is Paypal, MasterCard, etc.
posted by empath at 1:38 PM on May 30, 2013 [1 favorite]

Yep, and it's been established that money is speech. Brave new world, indeed.
posted by Jimbob at 3:13 PM on May 30, 2013 [1 favorite]

As I understand it the Bank Secrecy Act can be read to require that those engaged in Bitcoin mining register with Fincen. They will be required to identify the participants involved and report specific transaction types such as those involving more than $10,000. They will also be prohibited from handling transactions involving individuals subject to US sanctions.

So what you'd need to do is create a registry of Bitcoin addresses and public keys. You would need to then treat these as accounts for purposes of Fincen. As you construct a block for mining, you would need to ensure you only included identified parties and make necessary disclosures to the US Treasury.
posted by humanfont at 4:01 PM on May 30, 2013

It could apply to isk and other game currencies. The US hasn't chosen to do anything about them.
posted by empath at 7:15 PM on May 30, 2013

This article talks about how Linden labs recently updated the terms of service for its exchange between linden dollars and real dollars to comply with the new Treasury guidance regarding virtual currencies and FINCEN.
posted by humanfont at 8:01 PM on May 30, 2013

Top 10 Bitcoin myths debunked.
posted by MoTLD at 9:22 AM on June 4, 2013 [1 favorite]