[zorked]

I don't understand why people think Bitcoin necessarily leads to governments collapsing. Bitcoin can be regulated in many ways:

1. If you buy a house you must show evidence that you earned the money. You can't earn all your Bitcoins Breaking-Bad (or Silk-Road) style and expect that the government will think your new-found fortune is ok. Thanks to the blockchain you kind of can't lie too much, unlike, say, cash.

2. If the government wants to ban certain activities it can do so easily. Suppose that the government wants to keep its citizens from gambling or from using mixer services, it could declare that it won't recognize Bitcoins that passed through those services as legal tender. Good luck paying property taxes with your tainted bitcoins.

... and so on. Things are not that different. In fact the blockchain may mean that the government has more, and not less, access to information: for example governments generally can't access information from other countries except in rare occasions. With Bitcoins that information is accessible by default.

Now what the government can't do with Bitcoin is play games with the money supply. People in places such as Argentina could perhaps tell us why that would be a good thing.

[pjc50]

Except that finite money supply in a growing economy with positive interest rates is both deflationary and a driver of increasing inequality.

Sensible active monetary policy and "lender of last resort" activities are vital to functioning modern economies. That's why they had to be enacted in Europe during the financial crisis despite not being properly provided for by the existing Euro framework.

[oleganza]

The inflationary economy already created huge inequality. Do you think all Fed's printed dollars are equally distributed to the poor? In reality, they all go to banks that loan them to the poor. Increasing prices on energy and food + mortgage and other credits prevent poor people from saving money and becoming economically independent.

Bitcoin holders, on the other hand, have to sell bitcoin below tomorrow's price to eat something today. It is reversed trend: the more people want bitcoins, the more "equally" they will become distributed. Everyone who holds and doesn't spend bitcoins does not participate in the economy and thus doesn't earn his wealth yet. But to earn it he has to part with part of his stash, thus leaving less for himself in the future.

[yk]

( I am rather trying the argument, rather than actually believing it myself.)

There are not only BTCs, but also forks and other crypto currencies. So if BTCs hording becomes a problem the incentive to adopt one of the alternatives will rise. Diminishing the value of BTC relative to some other currency and therefore suppressing ( at least to some extend) hording.

[oleganza]

Hoarding (saving) will never become a problem because the value of currency is derived from all savers willing to hold it. Why would I store money in an altcoin if Bitcoin has bigger number of savers and I project that it will only increase (and thus increasing my own wealth)?

People want one money - the most marketable most liquid commodity to store their cash in. http://blog.oleganza.com/post/54121516413/the-universe-wants...

[grinnbearit]

Mencius Moldbug expands on this concept http://unqualified-reservations.blogspot.in/2011/04/on-monet...

[shazow]

"Tainted Bitcoins" can be trivially laundered and mixed in with normal Bitcoins. This will only become easier in the future, and conceivably make it into the protocol itself with something like ZeroCoin.

It's funny but there is a lot of similar discussion on the other side of the fence, too: "Now that the FBI has a hold of DPR's Bitcoins, how do we blacklist these tainted Bitcoins so that we don't fall for honeypots/undercover agents?"

You can't, unless you want to fork the blockchain and start a new genesis block sans the Bitcoins you don't like, but that would be disasterous and no one would agree to it. It would defeat the whole premise of Bitcoin—why are your Bitcoins more special than my Bitcoins?

Truth is, tax collection works largely on the honour system, cooperation from employers, and through audits/investigation. Bitcoin is no different. The only real benefit the blockchain could give is to help automate some of the consensual tax collection further.

[maxerickson]

You are insisting on your own definition of tainted here. Your parent comment is using a definition where coins that pass through a mixer with tainted coins themselves become tainted. An aggressive party might do much the same thing with a service like Zerocoin (that is, once it watched a tainted coin go it, it would assume that only tainted coins can come out).

But anyway, the government accepting any bitcoins for tax payments should probably be considered a win for the ecosystem.

[shazow]

> You are insisting on your own definition of tainted here.

How do you figure?

> Your parent comment is using a definition where coins that pass through a mixer with tainted coins themselves become tainted. [...]

1. The aggressive party would have to stop accepting any coins that come from Zerocoin altogether.

2. Mr. Taint can go about his day sending Satoshi's to random addresses in the blockchain, effectively tainting every address he can find.

3. It would require collaboration from every single Bitcoin service, otherwise a single non-collaborating service would end up mixing tainted coins with non-tainted coins over time and the whole population would become tainted.

[maxerickson]

Because under a stronger definition of tainted, they cannot be trivially mixed, they pass on the contagion.

The US government can ostensibly stop accepting Zerocoins. In that event, so would any party that wanted to trade with them. There wouldn't be any need for a new blockchain, possessors of clean coins would simply have to decide how much extra value that part of ecosystem provided.

That last sentence mixes up with your point 3, tainting all the coins would be a collaboration between owners of clean coins and service providers, there is at least room for owners of clean coins to be careful with them.

[icebraining]

2. If the government wants to ban certain activities it can do so easily. Suppose that the government wants to keep its citizens from gambling or from using mixer services, it could declare that it won't recognize Bitcoins that passed through those services as legal tender. Good luck paying property taxes with your tainted bitcoins.

Bitcoins aren't actual "things", they're just values that get debited from an account and credited in another, so you can't have tainted bitcoins.

You could have tainted addresses, by checking if there's a path between a certain address and the blacklisted ones, but then anyone could taint anyone else's address by just sending them a Satoshi.

[maxerickson]

It can play games though. It can buy and hold to tighten the market and then dump coins to loosen it up.

Given the current size of the market, a government budget of a few billion dollars can easily whipsaw the bitcoin supply.

[oleganza]

That would be very expensive for government. First, it will basically give away a lot of money and invite 100 times more people and capital in the bitcoin economy. Then, after selling its stash it will affect the price much less (because it will also have been driven up by many additional speculators) and simply earn back much less USD than they have spent.

Of course, it will destabilize prices for some period of time, but only at great expense to itself and making millions of people aware of Bitcoin and thus accelerating its long-term growth.

[maxerickson]

You are saying you don't think government manipulation would have negative (long term) impacts. That's a separate thing from the government not being able to play games with the currency.

Part of the reason I said 'a few billion' is that several governments can afford to spend that, no problem. If they think they are facing an existential threat (as you seem to believe), it is basically a certainty that they will try it.

[oleganza]

As a speculator the government is no better than any other speculator. It will compete on par (more cash is simply more risk). And big players trading bitcoin is a good reason for many more players to jump in this market. The governments are unique in their ability to apply guns. When guns are not used, it's no different from big investment firms playing on markets.