[kiba]

As a bitcoin veteran, I expect carnage, always. I learn that the hard way several months ago.

Moreover, I tend to be fatalistic about the price of bitcoin. Whether or not the market is manipulated, as long goods and services are popping up in the bitcoin economy, we'll be alright in the long run.

[joe_the_user]

But isn't bitcoin supposed to not just work but actually be somehow better than ordinary currency?

Wouldn't that include being more stable? Or am I missing something?

[gwern]

Exchange rates are set by supply, and demand. Bitcoin has through technical means controlled the supply part of the equation, but how can it control demand? So fluctuations in demand will cause changes. In the growth period, Bitcoin can't be stable, and it would be impossible for any currency to do so without extremely precise statistics on how a currency was being used and control over inflation (so you could, say, adjust supply exactly to match fluctuations in demand).

In the long run, most of the obvious equilibriums for Bitcoin are very far away from whatever it's currently trading at. If Bitcoin fails and becomes playmoney, then it's overpriced by hundreds of times; if it succeeds and replaces any sovereign country's currency, then it's undervalued by hundreds or thousands or millions of times. So in the long run, you must expect it to not be 'stable', but to change drastically - in some direction.

(If this isn't convincing, try applying the double reversal test Nick Bostrom devised for combating the status quo bias (http://www.nickbostrom.com/ethics/statusquo.pdf) and anchoring (http://en.wikipedia.org/wiki/Anchoring). Suppose that Bitcoin were at $2 rather than $4. Would you be saying 'obviously the right price for Bitcoin is $4, so I should buy some'? I doubt it. )

When Bitcoin is supposed to be stable is when demand for it is not varying; supply will be stable by the Bitcoin architecture, and hence, the overall equation wouldn't change in that situation. This differs from fiat currency in that you are only vulnerable to changes in the demand part of the equation - there is no Fed or other cabal that can hurt you by manipulating the supply part of the equation.

[rorrr]

Imagine Amazon starts accepting bitcoins. The rate will probably skyrocket to more than 100 USD.

Actually, digital currency is inevitable, it's only a matter of time till there's some global currency not controlled by one government. Bitcoin is a pretty good candidate.

[lukev]

That depends entirely on the rate at which Amazon accepts bitcoins.

[xnerdr]

As a bitcoin veteren, what, if any, do you expect will be the US reaction once it becomes big enough to cause problems?

[cookiecaper]

I expect that they will do everything possible to marginalize or damage it.

[27182818284]

So far the US reaction has been positive. The CIA is paying BitCoin members to give talks about it. As someone pointed out in a Bitcoin forum, unlike Liberty Dollars or E-Gold, Bitcoin could prove to be a useful way of securely and anonymously paying people off

[JeremyBanks]

> The CIA is paying BitCoin members to give talks about it.

A BitCoin developer to give a talk about it to them.

[borism]

I wouldn't make much out of CIA doing something. They have done crazier shit before.

[ceejayoz]

> So far the US reaction has been positive. The CIA is paying BitCoin members to give talks about it.

By that definition, the US reaction to IEDs in Iraq has been positive, as people with bomb making experience are brought in to give talks about them.

[iwwr]

What sort of problems?

[tba]

Potential issues with anonymous currency include money laundering and assassination markets.

[gwern]

Link for those not familiar: http://en.wikipedia.org/wiki/Assassination_market

Personally, I think assassination markets could be a net benefit (think of the bounties on someone like Kim Jong-Il), but then, I like them enough that I write stories about them so I'm biased: http://www.gwern.net/fiction/The%20Ones%20Who%20Walk%20Towar...

[tba]

"think of the bounties on someone like Kim Jong-Il"

Did you ever think of the bounties on anyone inconvenient to governments or big businesses? The founders of The Pirate Bay, Julian Assange and Bradley Manning, BP whistleblowers, environmental activists and climate scientists – would society be better off with them all dead?

[gwern]

One Kim Jong-Il is worth all of Pirate Bay combined, and heck, throw in Assange & Manning as well (they've informed the public, helped out the historians a lot, and caused some irritation, but I see few concrete changes to stack up against hundreds of thousands of dead).

So, yes, I did think of the inconvenient people.

[borism]

think of the bounties on someone like Kim Jong-Il

Now think of the bounties on average folks like you and me in comparison.

That's right, our lives will instantly be worth pennies and there'll instantly many folks around with incentive to murder.

[Unseelie]

Pennies is a bit extreme. The risk in the enterprise is pretty high, expert assassins rare, and amatures likely to get caught.

While an expert assassin may take a job on a random Joe for on the order of a hundred dollars, an amateur with any sense will not, and therefor the price will be rather high.

And, even if assassinations of pedestrians becomes realistically common..On the order of car crash mortalities, its at least a cause of death that may make people consider how they act toward one another.

[lsc]

well, I'm not a bitcoin veteran, but I lost a few bucks to the e-gold thing; what's to keep bitcoin from suffering the same fate?

[sgornick]

e-gold was a centralized system. When they got shut down, you no longer had the ability to receive value for your holdings.

Bitcoin is decentralized. The ability to spend is protected by the private crypto keys in your wallet stored locally (assuming you store your bitcoins on your own computer.)

As long as there is a network of nodes out there ( current view: http://maps.google.com/maps?q=https://smsz.net/btcStats/bitc... ) and your software can reach one or more of them means: 1.) you still have the ability to spend your bitcoins at any time 2.) the recipient has the ability to know that those coins were not spent previously

Shutting down e-gold involved taking down the center. Bitcoin has no center, no "master node" -- only peers.

The most central aspect of bitcoin is found in the exchanges. Those worried about an e-gold situation happening again do not have amounts of any significance (either USD or bitcoins) held by an exchange.

[JulianMorrison]

There's nobody with an off-switch.

[lsc]

yeah; this is what scares me more about bitcoin than e-gold.

With E-gold, the government went after the owners, and they were able to shut the whole operation down; I lost maybe two hundred bucks worth of gold.

Now, when the government decides to shut down bitcoin, what happens? there is no central 'off switch' - just like drugs, they will have to go after the users, or like illegal information, they will have to go after the viewers.

I mean, I think I'm being a little bit paranoid here, but I just don't see the government leaving a system that works so well for money laundering in place, and all the things I can think of the government doing to dismantle bitcoin seem like they would be quite unpleasant for the users, over and above just losing the money invested.

[JulianMorrison]

Interesting argument.

Trying to go against users is hard, the government is not as dumb as the music industry, to play whack-a-mole versus grandmothers and kids. My guess is they would attack exchanges trading BTC <-> USD. There are fewer, and separating the BTC economy from the USD one would make the currency significantly less attractive. Even the threat to do so would crash its USD price.