More Wrestling with Bitcoin
Would Hayek have been a fan of Bitcoin? Could ‘key disclosure’ be used to confiscate Bitcoins? Will we some day have gold backed Bitcoins?
A few interesting thoughts and links as a follow up to my last post on Bitcoin.
After reading this piece by Hayek, I have to think that he would have been a Bitcoin fan. (Thank you Monetaryfreedom.org for sending the link.)
“Under the Gold Standard, or any other metallic standard, the value of money is not really derived from gold. The fact is, that the necessity of redeeming the money they issue in gold, places upon the issuers a discipline which forces them to control the quantity of money in an appropriate manner;”
“Even if, by some international treaty, the gold standard were reintroduced, there is not the slightest hope that governments will play the game according to the rules.”
“the gold standard is a partly effective mechanism to make governments do what they ought to do in their control of money, and the only mechanism which has been tolerably effective in the case of a monopolist who can do with the money whatever he likes. Otherwise gold is not really necessary to secure a good currency.”
“The interesting fact is that what I have called the monopoly of government of issuing money has not only deprived us of good money but has also deprived us of the only process by which we can find out what would be good money. We do not even quite know what exact qualities we want because in the two thousand years in which we have used coins and other money, we have never been allowed to experiment with it, we have never been given a chance to find out what the best kind of money would be.”
“I think we ought to start fairly soon, and I think we must hope that some of the more enterprising and intelligent financiers will soon begin to experiment with such a thing. The great obstacle is that it involves such great changes in the whole financial structure that, and I am saying this from the experience of many discussions, no senior banker, who understands only the present banking system, can really conceive how such a new system would work, and he would not dare to risk and experiment with it. I think we will have to count on a few younger and more flexible brains to begin and show that such a thing can be done.”
Adding a twist to the Bitcoin regulation debate, could governments use key disclosure laws to confiscate Bitcoins? Key disclosure laws are already in use in the UK, Australia and South Africa. Jon Matonis discusses the possibilities here.
“Key disclosure laws may become the most important government tool in asset seizures and the war on money laundering. When charged with a criminal offense, that refers to the ability of the government to demand that you surrender your private encryption keys that decrypt your data. If your data is currency such as access control to various amounts of bitcoin on the block chain, then you have surrendered your financial transaction history and potentially the value itself.”
Maybe instead of arguing goldbugs and Bitcoin users could get together and offer a gold backed version of Bitcoin? No doubt there would be many structural and technical specifics to work out, but it’s a very interesting idea.
Bitcoin may be the first one to really catch on, but it is not the only cryptocurrency out there. LiteCoin and SolidCoin are just a few of the other options. In fact LiteCoin sells itself as “silver to Bitcoin’s gold”. Should cryptocurrency use continue to grow no doubt many more options would spring up to compete with and be used alongside Bitcoin.
Here are a few links that discuss Bitcoin off shoots. (Thank you Eliel)
https://bitcointalk.org/index.php?topic=101197.0
http://yoniassia.com/bitcoin-2-x-or-currency-2-x-initial-specs/
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[…] by blockchained link 2 […]
Bitcoin is a decentralized digital currency. The decentralization comes from consensus from miners submitting proof-of-work. As such, it is vulnerable to an attack sometimes referred to as the 51% attack. Bitcoin has grown to such a degree that a 51% attack using GPUs or FPGAs is very expensive and brings little economic gain.
Litecoin is another decentralized digital currency that too uses proof of work. However, it is too small to be beyond the vulnerable stage. Though an attack doesn’t make economic sense, it isn’t that prohibitively expensive to perform even for a single mid-size Bitcoin miner, including those who will be retiring their GPU hardware soon due to Bitcoin’s upcoming block reward subsidy drop. Holding Litecoins is not currently anything but a high risk investment — more than an order of magnitude more risky than Bitcoin, in my opinion.
And Solidcoin is not a decentralized proof-of-work cryptocurrency , so that’s not even worth mention here.