Bitcoins as investment

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
User avatar
3CT_Paddler
Posts: 3309
Joined: Wed Feb 04, 2009 5:28 pm
Location: Marietta, GA

Re: Bitcoins as investment

Post by 3CT_Paddler »

manwithnoname wrote: This is the end of bit coin as a substitute for currency backed and regulated by sovereign governments. Why would anyone except criminals use a private currency that has no backing of its "assets" which only exist in software code as 1s and 0s?
It may be the beginning of the end, but it certainly is not the end (yet).
manwithnoname
Posts: 1584
Joined: Mon Jul 22, 2013 7:52 pm

Re: Bitcoins as investment

Post by manwithnoname »

3CT_Paddler wrote:
manwithnoname wrote: This is the end of bit coin as a substitute for currency backed and regulated by sovereign governments. Why would anyone except criminals use a private currency that has no backing of its "assets" which only exist in software code as 1s and 0s?
It may be the beginning of the end, but it certainly is not the end (yet).
riddle me this:

who is going to engage in transactions using a private currency that exists only in some code in cyber space with no full faith and credit guarantee that the currency will honored or available for payment? Mt Gox is the future of bitcoin.
barnaclebob
Posts: 4247
Joined: Thu Aug 09, 2012 10:54 am

Re: Bitcoins as investment

Post by barnaclebob »

manwithnoname wrote:
3CT_Paddler wrote:
manwithnoname wrote: This is the end of bit coin as a substitute for currency backed and regulated by sovereign governments. Why would anyone except criminals use a private currency that has no backing of its "assets" which only exist in software code as 1s and 0s?
It may be the beginning of the end, but it certainly is not the end (yet).
riddle me this:

who is going to engage in transactions using a private currency that exists only in some code in cyber space with no full faith and credit guarantee that the currency will honored or available for payment? Mt Gox is the future of bitcoin.
The "faith and guarantee" is in technology/coding and unlike governments that can play with the value of currency, the coding is public and cannot be changed. The value is determined by the market.

Virtual or cryptocurency is very real and has a lot of potential. But it wont see much mainstream acceptance until it is stable long term to the point where people and companies can keep a stock of it in their accounts without the fear of loosing 50% of their $ value by the end of the day. If the execs at paypal are smart they should have a fairly sizable team dedicated to analyzing this long term threat to them.
hiddensee
Posts: 419
Joined: Fri Feb 07, 2014 4:17 am

Re: Bitcoins as investment

Post by hiddensee »

What does "faith and guarantee" even mean? Exactly what guarantee has been provided? Can US dollars be exchanged for something else at a pre-determined, fixed rate? If some emergency happens (defined how?) has the US government agreed to provide some kind of compensation for real losses incurred by holding dollars?

No. There is no guarantee. One can have faith in what one likes, but the US currency, like God's divine plan, is guarded by a providence that does not seem to manifest itself in the corporeal world.

US dollars have one special legal privilege: you can pay your taxes with them. US dollars are tax tokens. But since other commodities (including passwords - that's what a bitcoin is) can be exchanged for these tax tokens, what's the reason to hold them? Even people on this site, while they may denominate their holdings in US tax tokens, mostly hold physical assets (equities) or guarantees of payment that are guaranteed by law rather than by faith (bonds).

I'm not saying I think bitcoins are a good investment - I don't - but the only thing making them a worse one than US tax tokens is their volatility, and many states' tax tokens have that and worse.
rongos
Posts: 114
Joined: Wed May 04, 2011 8:36 am

Re: Bitcoins as investment

Post by rongos »

manwithnoname wrote:riddle me this:

who is going to engage in transactions using a private currency that exists only in some code in cyber space with no full faith and credit guarantee that the currency will honored or available for payment?
The guarantee that the currency will be, as you say, available for payment, is guaranteed by encryption and greed. You seem to doubt encryption. Have you thought about the security of your connection when you access the website of your Vanguard account, your bank account, or you brokerage account? Hackers spend their lives trying to figure out how to break into your connection and gain access to your money. The fact that it hasn't been broken in a large scale manner shows that it is viable for the this purpose.

Secondly, greed is powerful and is used to create the Bitcoin network. Miners mining for bitcoins, greed, not governments or corporations, insures that bitcoins will be made available for your use. Powerful stuff.
Wolkenspiel
Posts: 558
Joined: Wed Sep 30, 2009 7:45 am

Re: Bitcoins as investment

Post by Wolkenspiel »

rongos wrote: Secondly, greed is powerful and is used to create the Bitcoin network. Miners mining for bitcoins, greed, not governments or corporations, insures that bitcoins will be made available for your use. Powerful stuff.
The greed of miners mining for bitcoins will be (is?) nothing next to the greed of hackers worldwide relieving people, who in general have a hard time with the simplest computer security strategies, of their bitcoin treasures. Even if there are no fundamental flaws in the algorithm itself, it seems rather unclear who is going to guarantee the soundness of the necessary infrastructure? Mt.Gox always seemed a bit funky, but obviously many people did not get the memo in time, if there even was one. Some point to the fact that both the underlying math and "the code" are public domain. But as maybe 0.001% of all Bitcoin users actually have the time/expertise/will to form their own judgement, this is just an appeal to an even less well defined authority than "government".
hiddensee
Posts: 419
Joined: Fri Feb 07, 2014 4:17 am

Re: Bitcoins as investment

Post by hiddensee »

Wolkenspiel wrote:
rongos wrote: Secondly, greed is powerful and is used to create the Bitcoin network. Miners mining for bitcoins, greed, not governments or corporations, insures that bitcoins will be made available for your use. Powerful stuff.
The greed of miners mining for bitcoins will be (is?) nothing next to the greed of hackers worldwide relieving people, who in general have a hard time with the simplest computer security strategies, of their bitcoin treasures. Even if there are no fundamental flaws in the algorithm itself, it seems rather unclear who is going to guarantee the soundness of the necessary infrastructure? Mt.Gox always seemed a bit funky, but obviously many people did not get the memo in time, if there even was one. Some point to the fact that both the underlying math and "the code" are public domain. But as maybe 0.001% of all Bitcoin users actually have the time/expertise/will to form their own judgement, this is just an appeal to an even less well defined authority than "government".
If you expose a flaw in the bitcoin source code you will be, however temporarily, famous, not just now on the internet but in real life also. There are enough people capable of finding them.
manwithnoname
Posts: 1584
Joined: Mon Jul 22, 2013 7:52 pm

Re: Bitcoins as investment

Post by manwithnoname »

rongos wrote:
manwithnoname wrote:riddle me this:

who is going to engage in transactions using a private currency that exists only in some code in cyber space with no full faith and credit guarantee that the currency will honored or available for payment?
The guarantee that the currency will be, as you say, available for payment, is guaranteed by encryption and greed. You seem to doubt encryption. Have you thought about the security of your connection when you access the website of your Vanguard account, your bank account, or you brokerage account? Hackers spend their lives trying to figure out how to break into your connection and gain access to your money. The fact that it hasn't been broken in a large scale manner shows that it is viable for the this purpose.

Secondly, greed is powerful and is used to create the Bitcoin network. Miners mining for bitcoins, greed, not governments or corporations, insures that bitcoins will be made available for your use. Powerful stuff.
Its not the encryption its that there are too many unregulated intermediaries who have flaws in their IT systems which make bitcoins an unreliable system to transfer currency between parties. There are enough currency systems backed by sovereign governments to handle all the global financial transactions without the need for a private system that is unreliable and lacks solvency to guarantee payments.
hiddensee
Posts: 419
Joined: Fri Feb 07, 2014 4:17 am

Re: Bitcoins as investment

Post by hiddensee »

manwithnoname wrote:
rongos wrote:
manwithnoname wrote:riddle me this:

who is going to engage in transactions using a private currency that exists only in some code in cyber space with no full faith and credit guarantee that the currency will honored or available for payment?
The guarantee that the currency will be, as you say, available for payment, is guaranteed by encryption and greed. You seem to doubt encryption. Have you thought about the security of your connection when you access the website of your Vanguard account, your bank account, or you brokerage account? Hackers spend their lives trying to figure out how to break into your connection and gain access to your money. The fact that it hasn't been broken in a large scale manner shows that it is viable for the this purpose.

Secondly, greed is powerful and is used to create the Bitcoin network. Miners mining for bitcoins, greed, not governments or corporations, insures that bitcoins will be made available for your use. Powerful stuff.
Its not the encryption its that there are too many unregulated intermediaries who have flaws in their IT systems which make bitcoins an unreliable system to transfer currency between parties. There are enough currency systems backed by sovereign governments to handle all the global financial transactions without the need for a private system that is unreliable and lacks solvency to guarantee payments.
Transactions of state-issued currencies are also conducted by private organisations. States do not, as far as I know, compensate people for currencies losses due to fraud that occurs while using insecure private middle-men.
rongos
Posts: 114
Joined: Wed May 04, 2011 8:36 am

Re: Bitcoins as investment

Post by rongos »

manwithnoname wrote:Its not the encryption its that there are too many unregulated intermediaries who have flaws in their IT systems which make bitcoins an unreliable system to transfer currency between parties.
That's the beauty of bitcoin. If you keep your bitcoins in your own bitcoin wallet that only you control, you don't have to depend on the security of a bank or exchange like Mt Gox to keep your money safe. Only keep your money in a place like Mt Gox as long as it takes to exchange your money.
There are enough currency systems backed by sovereign governments to handle all the global financial transactions without the need for a private system that is unreliable and lacks solvency to guarantee payments.
Another beauty of bitcoin. If you want to transfer money to anyone anywhere in the world, you don't have to deal with the bureaucratic hassles and regulations of any bank of government. Sending money through banks to someone in another country can be a real pain. With bitcoin, all you need is the wallet ID of the receiver, like JSWFws2283sdfDDEF, and you can accomplish a transfer with no bureaucratic hassles.
User avatar
in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: Bitcoins as investment

Post by in_reality »

rongos wrote:That's the beauty of bitcoin. If you keep your bitcoins in your own bitcoin wallet that only you control, you don't have to depend on the security of a bank or exchange like Mt Gox to keep your money safe. Only keep your money in a place like Mt Gox as long as it takes to exchange your money.
That really is the beauty of bitcoin. Not only can someone make away to steal from an exchange, but presumably also find a way to get stuff out of that bitcoin wallet.

Oops my hard drive failed. Oops, I've been the victim of random ware. Oops my laptop, cellphone, or PC was stolen.
Another beauty of bitcoin. If you want to transfer money to anyone anywhere in the world, you don't have to deal with the bureaucratic hassles and regulations of any bank of government. Sending money through banks to someone in another country can be a real pain. With bitcoin, all you need is the wallet ID of the receiver, like JSWFws2283sdfDDEF, and you can accomplish a transfer with no bureaucratic hassles.
I do international transfers all the time. Have been for years. A slight improvement in convenience would be nice but like the security lines at airports, a small hassle is a small price to pay.

What we really don't need is an easy way to launder drug money. What we don't need is an easy way to contribute to terrorist organizations.

If you are labeling bureaucratic hassles as evil, please be honest about what kinds of organizations are out there in the world and how the more evil ones would really benefit from being able to operate freely. Feel free to be naive but understand that others have a more realistic understanding of what it is that could result.
rongos
Posts: 114
Joined: Wed May 04, 2011 8:36 am

Re: Bitcoins as investment

Post by rongos »

Your points are valid but I contend that measures can be taken to mitigate those concerns, and the balance that can be struck between those concerns and necessity of regulation can be struck at a point that favors the usefulness of bitcoin.
User avatar
in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: Bitcoins as investment

Post by in_reality »

rongos wrote:Your points are valid but I contend that measures can be taken to mitigate those concerns, and the balance that can be struck between those concerns and necessity of regulation can be struck at a point that favors the usefulness of bitcoin.
Yeah well there is no reason why the world shouldn't be improved if in fact that is what is being done.
neofight
Posts: 37
Joined: Sat Jul 27, 2013 1:14 pm

Re: Bitcoins as investment

Post by neofight »

in_reality wrote:Oops my hard drive failed. Oops, I've been the victim of random ware. Oops my laptop, cellphone, or PC was stolen.
The thing is, if you set it up right you could have all your coins "in a wallet" sitting on ALL of these mediums - hard drive, laptop, cellphone, PC. And lose every single one of them, and STILL have not lost your coins. Nor have EVER trusted your private keys to an online wallet or 3rd party.

Think about that for a second. Is your mind blown yet? IMO it should be.

I'm not meaning to sound cryptic - the basic idea is using what is known as a deterministic wallet. And ideally, only setting it up on a fully air-gapped dedicated PC. But since the global "ledger" is distributed across all the bitcoin miners & clients out there, you actually don't need to have bits on your computer that actually ARE your coins; your coins are merely an entry in the globally distributed ledger. Now to SPEND your coins, you need the private keys for the wallet you are storing the coins in. This is where the deterministic wallet becomes useful - since you can recreate the private keys at any time, assuming you know the cryptographically secure seed. Deterministic wallets like Electrum use random #s (or phrases) with 128 bits of entropy to deterministically generate the public/private key pairs, so you can recreate your wallet anywhere by simply entering the 12-word mnemonic code. And the odds of someone stumbling across your wallet are 1 in 2^128 (by comparison,there will only ever be 2^160 bitcoin addresses ever in the universe). So the odds of anyone being able to retrieve your coins apart from you is, ahem, very small.

The fear mongering about "what if I have a virus" is all true - people using poor security or making poor wallet choices absolutely are exposed to huge risk. But when done right, I would argue that the actual coins themselves are in theory, way safer than cash. Now the VALUE of those coins is NOT safer than cash, you might be safely storing something of zero value. But there is literally no way cash can match this level of security & flexibility.
User avatar
in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: Bitcoins as investment

Post by in_reality »

neofight wrote: The fear mongering about "what if I have a virus" is all true - people using poor security or making poor wallet choices absolutely are exposed to huge risk. But when done right, I would argue that the actual coins themselves are in theory, way safer than cash. Now the VALUE of those coins is NOT safer than cash, you might be safely storing something of zero value. But there is literally no way cash can match this level of security & flexibility.
And then you get old and forget the 12-word mnemonic code...

Or then someone points a gun to your head and demands your 12-word mnemonic code and then they transfer the bitcoins to a laundry service and now what was your money has disappeared and can't be traced. Oh great, now the heroin addicts can just hold people up and check their phone and if they see a bit wallet there, they know they got you. Be clever, have two accounts and give them the passphrase to the one holding just a small amount and don't have any indication of how much you actually hold.

The ability to launder the coins makes them attractive as a theft target I bet. And if your laptop or phone or pc has gone missing and you have a wallet on it, know that someone knows you hold bitcoins and if they can just get your 12-word mnemonic code, they can send your bitcoins to a laundry never to be seen by you again. Is that right? Please correct me. Or when people go to an ATM or pay at a shop, ha ha, if they can just get your 12-word mnemonic code out of you ... ? And they we can get fake or altered ATMs ... no? That's not possible? This thing about being traceless after laundering is a little worrisome. Cash has a physical limit and transfers to institutions are more easily traceable. What say yea?

Wait a second. All your transactions are listed in the ledger right. So if they see you at an ATM or shopping, and they manage to corner you and get your 12-word mnemomic code, wouldn't they be able to figure out if the code you gave them was the one you used earlier in the day. Better use an account that doesn't have all your coins in it. This thing about being traceless after laundering is a pretty worrisome to me and I won't be using any. Feel free though.

So to respond to the OP's question "Bitcoins as investment", if the safe way to hold that investment is to have a 12-word mnemonic code that can be used anytime to transfer your assets untraceably (using a laundry service), then I say even if they have an expected return higher than stocks, that you still have to factor in the risk of theft. Given the unexpected return and potential for risk of loss, I don't think they make any sense unless you enjoy life on the edge for the thrill of it.

Oh and yeah, if bitcoin laundries do work as they suggest they do, couldn't you just hold someone for randsom and make their loved one pay in bitcoins that you immediately launder without a trace. You could then release said loved one. Gone are the movies where they have to do the transfer of cash for safety. Bitcoins solved that problem. People are kidnapped for ransom everyday in parts of the world and this bitcoin thing is supposed to be a global solution right?

Ok so you have never had to work overseas where you were a target. Where you were told you were a target and where you had to take precautions so as not to become a victim. If the payoff is untraceable or can be made so by the litecoin addition or though a laundry service, I think your "ideal" system is actually a threat to my wellbeing. Maybe you have never had such an experience but it's not something that I will ever forget... now I realize why bitcoins scare me. Yes they scare me.

Anyways, thanks for your informative post.
Wolkenspiel
Posts: 558
Joined: Wed Sep 30, 2009 7:45 am

Re: Bitcoins as investment

Post by Wolkenspiel »

neofight wrote: The fear mongering about "what if I have a virus" is all true - people using poor security or making poor wallet choices absolutely are exposed to huge risk. But when done right, I would argue that the actual coins themselves are in theory, way safer than cash.
So, who do you think will be in the majority: People who do it right with a "fully air-gapped dedicated PC" or people with a password of "password" or "0123456789"?
Wolkenspiel
Posts: 558
Joined: Wed Sep 30, 2009 7:45 am

Re: Bitcoins as investment

Post by Wolkenspiel »

hiddensee wrote: If you expose a flaw in the bitcoin source code you will be, however temporarily, famous, not just now on the internet but in real life also. There are enough people capable of finding them.
The lesson from the Mt.Gox collapse seems to be that things can go majorly wrong without a "flaw in the bitcoin source code", just a little bit of clumsiness. We had discussions about Bitcoin for many months now. I don't recall many stern warnings against keeping them at an exchange until after the milk was spilled. Now everyone knows that Mt.Gox was run by flakes - why wasn't that obvious a bit earlier?

In actuality, for "Bitcoins as investment" I think the more imminent threat is regulation, which seems entirely inevitable. If one subtracts wild speculation, the desire to escape "bureaucratic hassles" and just straight criminal activity, which would immediately move to the next unregulated alternative, what sets the floor for the bitcoin value?
Wolkenspiel
Posts: 558
Joined: Wed Sep 30, 2009 7:45 am

Re: Bitcoins as investment

Post by Wolkenspiel »

hiddensee wrote: Transactions of state-issued currencies are also conducted by private organisations. States do not, as far as I know, compensate people for currencies losses due to fraud that occurs while using insecure private middle-men.
Isn't that exactly what FDIC insurance does? If my bank through stupidity or fraud loses the money I stored there, I get compensated (within limits and regulations)? Granted, if I move outside of the tightly regulated sector (e.g. from Vanguard to Madoff), all bets are off. Maybe I don't understand which "insecure middle-men" I should expect to encounter in the regular banking system.
Alex Frakt
Founder
Posts: 11093
Joined: Fri Feb 23, 2007 1:06 pm
Location: Chicago
Contact:

Re: Bitcoins as investment

Post by Alex Frakt »

Another thing, the end of Mt Gox is far from the first time bitcoins have been lost to fraud or hacking, it's only unique due to its scale. There's an extensive, but incomplete, list at https://bitcointalk.org/index.php?topic=83794.0 which details 11 losses of more than 10,000 bitcoin. To which you should add the current Mt Gox hack and probably the Silk Road 2.0 hack or scam.

There's even an academic paper on the topic, Beware the Middleman: Empirical Analysis of Bitcoin-Exchange Risk http://lyle.smu.edu/~tylerm/fc13.pdf
Abstract: Bitcoin has enjoyed wider adoption than any previous cryptocurrency; yet its success has also attracted the attention of fraudsters who have taken ad-
vantage of operational insecurity and transaction irreversibility. We study the risk investors face from Bitcoin exchanges, which convert between Bitcoins and hard currency. We examine the track record of 40 Bitcoin exchanges established over the past three years, and find that 18 have since closed, with customer account balances often wiped out. Fraudsters are sometimes to blame, but not always. Using a proportional hazards model, we find that an exchange’s transaction volume indicates whether or not it is likely to close. Less popular exchanges are more likely to be shut than popular ones. We also present a logistic regression showing that popular exchanges are more likely to suffer a security breach.
And losses aren't the only issue. Presumably, access to your money is a distinguishing characteristic of money. Yet a single coordinated denial of service attack forced the two largest bitcoin exchanges to suspend withdrawals for days a couple of weeks ago.

http://online.wsj.com/news/articles/SB1 ... 1107915154
Feb. 11, 2014 6:41 p.m. ET
The two largest bitcoin-trading exchanges came under attack from hackers Tuesday, leaving customers unable to withdraw their money in the latest development to roil the fledgling virtual currency...

Both exchanges described the problem as a denial-of-service attack, according to comments made by the companies on their websites. In denial-of-service attacks, hackers essentially disable a website by flooding it with information requests.

The two exchanges account for 56% of bitcoin trading volume, according to bitcoincharts.com, which tracks trading activity.
toto238
Posts: 1892
Joined: Wed Feb 05, 2014 2:39 am

Re: Bitcoins as investment

Post by toto238 »

Now let's say a company decided to issue stock that paid dividends in bitcoin, and issued bonds that paid interest in bitcoin? Would you buy stocks or bonds from a company that operates in bitcoin?
User avatar
in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: Bitcoins as investment

Post by in_reality »

toto238 wrote:Now let's say a company decided to issue stock that paid dividends in bitcoin, and issued bonds that paid interest in bitcoin? Would you buy stocks or bonds from a company that operates in bitcoin?
Is there SIPC insurance for the dividends if I don't reinvest?
Do I have to send the dividends to Mt.Gox Bulgaria or some such place to get cash to rebalance?
Have I lost my mind and started investing in individual stocks?
Do I need another settlement account?
Will the process of calculating gains or losses for holding those bit coins be seamlessly calculated for tax purposes?

I think probably not.
hiddensee
Posts: 419
Joined: Fri Feb 07, 2014 4:17 am

Re: Bitcoins as investment

Post by hiddensee »

Wolkenspiel wrote:
hiddensee wrote: Transactions of state-issued currencies are also conducted by private organisations. States do not, as far as I know, compensate people for currencies losses due to fraud that occurs while using insecure private middle-men.
Isn't that exactly what FDIC insurance does? If my bank through stupidity or fraud loses the money I stored there, I get compensated (within limits and regulations)? Granted, if I move outside of the tightly regulated sector (e.g. from Vanguard to Madoff), all bets are off.
This is a guarantee on bank deposits specifically; if you put that cash under your bed the US government will not refund you. Moreover the government will only refund you the same nominal amount of tax tokens, and then only up to a certain limit.
Maybe I don't understand which "insecure middle-men" I should expect to encounter in the regular banking system.
The complaint, as I understand it, is that the bitcoin exchanges were insecure. The poster implied this was a necessary consequence of private ownership of exchanges. But fiat money exchanges are most conducted by private currency brokers, and they don't seem to be regarded as inherently insecure.
manwithnoname
Posts: 1584
Joined: Mon Jul 22, 2013 7:52 pm

Re: Bitcoins as investment

Post by manwithnoname »

hiddensee wrote:
Wolkenspiel wrote:
hiddensee wrote: Transactions of state-issued currencies are also conducted by private organisations. States do not, as far as I know, compensate people for currencies losses due to fraud that occurs while using insecure private middle-men.
Isn't that exactly what FDIC insurance does? If my bank through stupidity or fraud loses the money I stored there, I get compensated (within limits and regulations)? Granted, if I move outside of the tightly regulated sector (e.g. from Vanguard to Madoff), all bets are off.
This is a guarantee on bank deposits specifically; if you put that cash under your bed the US government will not refund you. Moreover the government will only refund you the same nominal amount of tax tokens, and then only up to a certain limit.
Maybe I don't understand which "insecure middle-men" I should expect to encounter in the regular banking system.
The complaint, as I understand it, is that the bitcoin exchanges were insecure. The poster implied this was a necessary consequence of private ownership of exchanges. But fiat money exchanges are most conducted by private currency brokers, and they don't seem to be regarded as inherently insecure.
Bank depositers are unaffected by the currency transactions conduced by private brokers on regulated currency exchanges. The bankruptcy of MF Global which engaged in currency transactions on regulated exchanges did not affect the value of customers accounts held in FDIC banks nor did it change the value of the US $ on the world markets.
hiddensee
Posts: 419
Joined: Fri Feb 07, 2014 4:17 am

Re: Bitcoins as investment

Post by hiddensee »

I would like to be clear what we are discussing.

Bitcoin exchanges are regulated. They are regulated by contracts, which are legally enforceable. It is a criminal offence to take Bitcoins under false pretences or by hacking computer systems, etc. One is civilly liable to render up any Bitcoins promised in a contract, just like in any other commodity transaction.

FDIC, you say, is an additional regulation protecting USD transactions. But FDIC is a guarantee for bank deposits. Currency transactions are not bank deposits. If your Securicor van is robbed, or a private currency broker is defrauded and goes bankrupt, FIDC will not refund you.

You then make a distinct argument, that this instance of theft/fraud was so large that it affected the exchange rate of the currency. The US government provides no protection against this happening to the dollar. There are so many dollars in circulation that it is impractical to steal enough of them to have much effect, but this is not inherent to state-backed currencies. A currency issued in small quantities by a small country could suffer from the same issues. Moreover, any theft large enough to cause volatility in the dollar enough would certainly not be compensated by FDIC, even if FDIC protected currency transfers, since FDIC only protects retail-scale investors. Finally, the US government does not and has never provided any guarantee whatsoever against real losses in dollar deposits, only nominal losses. They would, at most, refund your dollars, not their former value.

Now, even if FDIC did protect currency transfers, and even if it did protect real losses, FDIC is still a distinct issue from the currency being issued by the state. The currency was issued by the US state for more than one hundred years before FDIC was introduced. So is the problem, if there is one, that Bitcoin is not a state-issued currency, or that FDIC does not protect deposits of Bitcoins?
manwithnoname
Posts: 1584
Joined: Mon Jul 22, 2013 7:52 pm

Re: Bitcoins as investment

Post by manwithnoname »

hiddensee wrote:I would like to be clear what we are discussing.

Bitcoin exchanges are regulated. They are regulated by contracts, which are legally enforceable. It is a criminal offence to take Bitcoins under false pretences or by hacking computer systems, etc. One is civilly liable to render up any Bitcoins promised in a contract, just like in any other commodity transaction.

FDIC, you say, is an additional regulation protecting USD transactions. But FDIC is a guarantee for bank deposits. Currency transactions are not bank deposits. If your Securicor van is robbed, or a private currency broker is defrauded and goes bankrupt, FIDC will not refund you.

You then make a distinct argument, that this instance of theft/fraud was so large that it affected the exchange rate of the currency. The US government provides no protection against this happening to the dollar. There are so many dollars in circulation that it is impractical to steal enough of them to have much effect, but this is not inherent to state-backed currencies. A currency issued in small quantities by a small country could suffer from the same issues. Moreover, any theft large enough to cause volatility in the dollar enough would certainly not be compensated by FDIC, even if FDIC protected currency transfers, since FDIC only protects retail-scale investors. Finally, the US government does not and has never provided any guarantee whatsoever against real losses in dollar deposits, only nominal losses. They would, at most, refund your dollars, not their former value.

Now, even if FDIC did protect currency transfers, and even if it did protect real losses, FDIC is still a distinct issue from the currency being issued by the state. The currency was issued by the US state for more than one hundred years before FDIC was introduced. So is the problem, if there is one, that Bitcoin is not a state-issued currency, or that FDIC does not protect deposits of Bitcoins?
Regulated by contract is worth bupkis if your counter party (Mt Gox) becomes insolvent and files for bankruptcy because it lost $450M of Bitcoin. Try suing the hackers who stole the bitcoin. LOL.

There is no similar counterparty risk with the funds held at bank. Bank accounts are not affected by the changes in the value of dollar and all electronic transfers or checks from the bank account will be delivered at the same value to the payee. No brainer. I don't worry about the solvency of banks, VG or any other financial firms to make payments from or transfer funds to my accounts. No similar certainty is available for bitcoin.

The only way for bitcoin to have the same level of guarantees in payment transactions and protection of value of the currency in customer accounts that exists in the banking system is to be regulated by a central banking regulator. No brainer.
Last edited by manwithnoname on Sat Mar 01, 2014 1:39 pm, edited 1 time in total.
User avatar
momar
Posts: 1359
Joined: Sun Nov 13, 2011 12:51 pm

Re: Bitcoins as investment

Post by momar »

Six months ago: bitcoins are super secure because there is a distributed global record of them.

Now: Gosh, didn't everyone know that you need to do these 20 things to keep your bitcoins safe? People who weren't as tech savvy as me (at least, as savvy as I am now after reading what went wrong and how to protect myself after the fact) were morons

Six months from now: Geeze, you'd think people would have known they need to do these other 30 things and have an extra 3 computers to prevent this latest fiasco!

Me, at all times: Huh, I haven't had to do anything except put my dollars in a bank and they seem fine.
"Index funds have a place in your portfolio, but you'll never beat the index with them." - Words of wisdom from a Fidelity rep
chaz
Posts: 13604
Joined: Tue Feb 27, 2007 2:44 pm

Re: Bitcoins as investment

Post by chaz »

"... put my dollars in a bank and they seem fine."

Safer than investing in binary code "money".
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page
Professor Emeritus
Posts: 2628
Joined: Mon Aug 13, 2012 6:43 am

Re: Bitcoins as investment

Post by Professor Emeritus »

hiddensee wrote:I would like to be clear what we are discussing.

Bitcoin exchanges are regulated. They are regulated by contracts, which are legally enforceable. It is a criminal offence to take Bitcoins under false pretences or by hacking computer systems, etc. One is civilly liable to render up any Bitcoins promised in a contract, just like in any other commodity transaction.

?
1) contracts are not "regulation". Contracts are part of private law , not public law. They have none of the characteristics of regulation. In all criminal and civila cases first you have to "catch the rabbit" The reason drug dealers and kidnappers love Bitcoin scenarios is that you can't "catch the rabbit". You simly wont find a perosn you can hold responsible

2) If you can't act in personam you have to act "in rem" i.e. against the bitcoins themselves. You have to have a method for declaring that later owners do not have good title

3) Ultimately there are two choices either you can "taint" a bitcoin transaction (on the grounds the bitcoins were stolen) and prevent people from further lawfully transferring the bitcoins, or you can't. The whole history of the holder in due course doctrine was an attempt to deal with the same issue. The reason we ask for provenance on artwork is that thieves cannot generally give good title. But we have a different rule for negotiable instruments.
chaz
Posts: 13604
Joined: Tue Feb 27, 2007 2:44 pm

Re: Bitcoins as investment

Post by chaz »

750,000 bitcoins are missing from the Mt. Gox exchange per today's WSJ.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page
chaz
Posts: 13604
Joined: Tue Feb 27, 2007 2:44 pm

Re: Bitcoins as investment

Post by chaz »

Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page
User avatar
Rainier
Posts: 1531
Joined: Thu Jun 14, 2012 5:59 am

Re: Bitcoins as investment

Post by Rainier »

Can anybody recall when the last time a bank lost it's money and stuck it to the depositors?
manwithnoname
Posts: 1584
Joined: Mon Jul 22, 2013 7:52 pm

Re: Bitcoins as investment

Post by manwithnoname »

Rainier wrote:Can anybody recall when the last time a bank lost it's money and stuck it to the depositors?
If a bank becomes insolvent the FDIC usually sells the banking assets/loan portfolio to another bank, E.g., JPMorgan paid $2B to FDIC to takeover WaMu's banking operations including its $307B loan portfolio. JPM did not acquire $30B in unsecured debts and equity claims, e.g., preferred stock. Bank depositors became customers of the new bank without any loss of assets. Non banking assets of the bank holding company not sold off by the FDIC are left for bankruptcy court.

http://online.wsj.com/news/articles/SB1 ... 5586576687

In other cases, a bank will negotiate the acquisition of an insolvent bank about to be sold by the FDIC, e.g., Wells Fargo negotiated the purchase of both the banking and securities businesses of Wachovia for $5 a share with Wachovia's Board in 2008 after Citibank accepted the FDICs offer to purchase only Wachovia's banking assets for $1 a share. FDIC told Citi there was no prohibition to another bank making a higher offer for all of Wachovia's assets. Of course, Citi was in a precarious financial condition at the time of its acquisition of Wachovia's bank branches which is why the FDIC didn't object to Wells making a higher offer.

In rare cases the FDIC takes over the bank and liquidates it where the FDIC limits on deposit guarantees apply.
Last edited by manwithnoname on Sat Mar 01, 2014 3:23 pm, edited 3 times in total.
steve_14
Posts: 1507
Joined: Wed Jun 20, 2012 12:05 am

Re: Bitcoins as investment

Post by steve_14 »

Rainier wrote:Can anybody recall when the last time a bank lost it's money and stuck it to the depositors?
Happened frequently during the financial crisis of the past few years (in excess of the $250K FDIC limit of course).
User avatar
Rainier
Posts: 1531
Joined: Thu Jun 14, 2012 5:59 am

Re: Bitcoins as investment

Post by Rainier »

steve_14 wrote:
Rainier wrote:Can anybody recall when the last time a bank lost it's money and stuck it to the depositors?
Happened frequently during the financial crisis of the past few years (in excess of the $250K FDIC limit of course).
No, like literally lost the money? No bank has enough cash to pay back all it's depositors at once, but they certainly don't lose it because it was stolen.

Again, can anybody recall a time when a bank lost your deposits?

Wells Fargo just called... They said there was a problem in their computer code and they can't find our money. They said sorry!
manwithnoname
Posts: 1584
Joined: Mon Jul 22, 2013 7:52 pm

Re: Bitcoins as investment

Post by manwithnoname »

Rainier wrote:
steve_14 wrote:
Rainier wrote:Can anybody recall when the last time a bank lost it's money and stuck it to the depositors?
Happened frequently during the financial crisis of the past few years (in excess of the $250K FDIC limit of course).
No, like literally lost the money? No bank has enough cash to pay back all it's depositors at once, but they certainly don't lose it because it was stolen.

Again, can anybody recall a time when a bank lost your deposits?

Wells Fargo just called... They said there was a problem in their computer code and they can't find our money. They said sorry!
see link to FDIC insured bank failures going back to 2000. Most of the failed banks were acquired by another bank which means no depositor lost money

http://www.fdic.gov/bank/individual/fai ... klist.html
steve_14
Posts: 1507
Joined: Wed Jun 20, 2012 12:05 am

Re: Bitcoins as investment

Post by steve_14 »

Rainier wrote:
steve_14 wrote:
Rainier wrote:Can anybody recall when the last time a bank lost it's money and stuck it to the depositors?
Happened frequently during the financial crisis of the past few years (in excess of the $250K FDIC limit of course).
No, like literally lost the money? No bank has enough cash to pay back all it's depositors at once, but they certainly don't lose it because it was stolen.

Again, can anybody recall a time when a bank lost your deposits?

Wells Fargo just called... They said there was a problem in their computer code and they can't find our money. They said sorry!
In the case of Mt. Gox, sounds like the funds were "lost" either due to hackers or insider theft. Both happen in the case of commercial banks as well (and there will be a period where the source of the loss in unknown and must be investigated).

Has a banking customer ever found their account balance to be lower than it should be due to some issue on the bank's end? Happens all the time.
User avatar
Rainier
Posts: 1531
Joined: Thu Jun 14, 2012 5:59 am

Re: Bitcoins as investment

Post by Rainier »

steve_14 wrote:
Rainier wrote:
steve_14 wrote:
Rainier wrote:Can anybody recall when the last time a bank lost it's money and stuck it to the depositors?
Happened frequently during the financial crisis of the past few years (in excess of the $250K FDIC limit of course).
No, like literally lost the money? No bank has enough cash to pay back all it's depositors at once, but they certainly don't lose it because it was stolen.

Again, can anybody recall a time when a bank lost your deposits?

Wells Fargo just called... They said there was a problem in their computer code and they can't find our money. They said sorry!
In the case of Mt. Gox, sounds like the funds were "lost" either due to hackers or insider theft. Both happen in the case of commercial banks as well (and there will be a period where the source of the loss in unknown and must be investigated).

Has a banking customer ever found their account balance to be lower than it should be due to some issue on the bank's end? Happens all the time.
And it is always fixed. Is Mt gox going to be fixing this problem?
manwithnoname
Posts: 1584
Joined: Mon Jul 22, 2013 7:52 pm

Re: Bitcoins as investment

Post by manwithnoname »

steve_14 wrote:
Rainier wrote:
steve_14 wrote:
Rainier wrote:Can anybody recall when the last time a bank lost it's money and stuck it to the depositors?
Happened frequently during the financial crisis of the past few years (in excess of the $250K FDIC limit of course).
No, like literally lost the money? No bank has enough cash to pay back all it's depositors at once, but they certainly don't lose it because it was stolen.

Again, can anybody recall a time when a bank lost your deposits?

Wells Fargo just called... They said there was a problem in their computer code and they can't find our money. They said sorry!
In the case of Mt. Gox, sounds like the funds were "lost" either due to hackers or insider theft. Both happen in the case of commercial banks as well (and there will be a period where the source of the loss in unknown and must be investigated).

Has a banking customer ever found their account balance to be lower than it should be due to some issue on the bank's end? Happens all the time.
A few years ago my bank mistakenly withdrew $100 more from my account than was written on the check. The bank corrected the error as soon as I notified it.
chaz
Posts: 13604
Joined: Tue Feb 27, 2007 2:44 pm

Re: Bitcoins as investment

Post by chaz »

Rainier wrote:
steve_14 wrote:
Rainier wrote:
steve_14 wrote:
Rainier wrote:Can anybody recall when the last time a bank lost it's money and stuck it to the depositors?
Happened frequently during the financial crisis of the past few years (in excess of the $250K FDIC limit of course).
No, like literally lost the money? No bank has enough cash to pay back all it's depositors at once, but they certainly don't lose it because it was stolen.

Again, can anybody recall a time when a bank lost your deposits?

Wells Fargo just called... They said there was a problem in their computer code and they can't find our money. They said sorry!
In the case of Mt. Gox, sounds like the funds were "lost" either due to hackers or insider theft. Both happen in the case of commercial banks as well (and there will be a period where the source of the loss in unknown and must be investigated).

Has a banking customer ever found their account balance to be lower than it should be due to some issue on the bank's end? Happens all the time.
And it is always fixed. Is Mt gox going to be fixing this problem?
Mt gox is filing for bankruptcy.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page
steve_14
Posts: 1507
Joined: Wed Jun 20, 2012 12:05 am

Re: Bitcoins as investment

Post by steve_14 »

Rainier wrote:
steve_14 wrote:
Rainier wrote:
steve_14 wrote:
Rainier wrote:Can anybody recall when the last time a bank lost it's money and stuck it to the depositors?
Happened frequently during the financial crisis of the past few years (in excess of the $250K FDIC limit of course).
No, like literally lost the money? No bank has enough cash to pay back all it's depositors at once, but they certainly don't lose it because it was stolen.

Again, can anybody recall a time when a bank lost your deposits?

Wells Fargo just called... They said there was a problem in their computer code and they can't find our money. They said sorry!
In the case of Mt. Gox, sounds like the funds were "lost" either due to hackers or insider theft. Both happen in the case of commercial banks as well (and there will be a period where the source of the loss in unknown and must be investigated).

Has a banking customer ever found their account balance to be lower than it should be due to some issue on the bank's end? Happens all the time.
And it is always fixed. Is Mt gox going to be fixing this problem?
Not true at all - thousands of banks have gone under due to, for example, control fraud, from the 1930's to the 80s to the most recent crisis. And customer lose money there, beyond FDIC insurance amounts.
manwithnoname
Posts: 1584
Joined: Mon Jul 22, 2013 7:52 pm

Re: Bitcoins as investment

Post by manwithnoname »

There have been only 21 bank failures (all small banks) since 2000 where customers accounts were only protected up to the FDIC limits. The vast majority of failed banks have been purchased by another bank where all customer accounts over the FDIC limits have ben protected .

http://online.wsj.com/news/articles/SB1 ... 5586576687

Investors should not be fooled by comparisons between current U.S. bank failures and the number of failures in the past. Over the last 80 years, U.S. banks have become much larger and far fewer in number, so only a percentage comparison makes any sense. During the Great Depression, 9146 banks failed which is more than 100% of the 7932 banks that now exist.
Topic Author
boglerocks
Posts: 651
Joined: Sun Apr 03, 2011 9:08 pm

Re: Bitcoins as investment

Post by boglerocks »

It's back everyone. I'll get this out of the way in advance: I told you so.

EDIT: Up ~30% in the last ~3 days.
Last edited by boglerocks on Sun May 25, 2014 1:36 pm, edited 1 time in total.
chaz
Posts: 13604
Joined: Tue Feb 27, 2007 2:44 pm

Re: Bitcoins as investment

Post by chaz »

Some ATMs are being set up to convert bitcoins into legal currency, at least one in a casino.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page
Topic Author
boglerocks
Posts: 651
Joined: Sun Apr 03, 2011 9:08 pm

Re: Bitcoins as investment

Post by boglerocks »

chaz wrote:Some ATMs are being set up to convert bitcoins into legal currency, at least one in a casino.
There are more every day:

http://bitcoinatmmap.com/loc/north-america/
cowboysFan
Posts: 290
Joined: Sat Jan 25, 2014 1:46 pm

Re: Bitcoins as investment

Post by cowboysFan »

boglerocks wrote:It's back everyone. I'll get this out of the way in advance: I told you so.

EDIT: Up ~30% in the last ~3 days.
Bitcoin is still way below it's peak value, and so is far too volatile to be considered a stable store of value.
Topic Author
boglerocks
Posts: 651
Joined: Sun Apr 03, 2011 9:08 pm

Re: Bitcoins as investment

Post by boglerocks »

cowboysFan wrote:
boglerocks wrote:It's back everyone. I'll get this out of the way in advance: I told you so.

EDIT: Up ~30% in the last ~3 days.
Bitcoin is still way below it's peak value, and so is far too volatile to be considered a stable store of value.
Stable store of value? I don't think anyone has accused it of that.
cowboysFan
Posts: 290
Joined: Sat Jan 25, 2014 1:46 pm

Re: Bitcoins as investment

Post by cowboysFan »

boglerocks wrote:
cowboysFan wrote:
boglerocks wrote:It's back everyone. I'll get this out of the way in advance: I told you so.

EDIT: Up ~30% in the last ~3 days.
Bitcoin is still way below it's peak value, and so is far too volatile to be considered a stable store of value.
Stable store of value? I don't think anyone has accused it of that.
A lot of people talk about bitcoin as if it is money. Money, almost by definition, has two primary functions
1) a widely accepted medium of exchange
2) a stable store of value


If bitcoin fails both tests, then it's not money. If it's not money, not a bond, not a stock, not real estate, and not a commodity, then what exactly is it? As far as I can tell, it's a way for terrorists, narco-traffickers, and other criminals to launder their money, which is not something I would want to be involved with.
User avatar
White Coat Investor
Posts: 14949
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: Bitcoins as investment

Post by White Coat Investor »

Bitcoins haven't imploded yet? What's taking so long?

Oh well, I guess they're down 50% YTD. That seems to validate my opinion of them pretty well.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
Topic Author
boglerocks
Posts: 651
Joined: Sun Apr 03, 2011 9:08 pm

Re: Bitcoins as investment

Post by boglerocks »

cowboysFan wrote:
boglerocks wrote:
cowboysFan wrote:
boglerocks wrote:It's back everyone. I'll get this out of the way in advance: I told you so.

EDIT: Up ~30% in the last ~3 days.
Bitcoin is still way below it's peak value, and so is far too volatile to be considered a stable store of value.
Stable store of value? I don't think anyone has accused it of that.
A lot of people talk about bitcoin as if it is money. Money, almost by definition, has two primary functions
1) a widely accepted medium of exchange
2) a stable store of value


If bitcoin fails both tests, then it's not money. If it's not money, not a bond, not a stock, not real estate, and not a commodity, then what exactly is it? As far as I can tell, it's a way for terrorists, narco-traffickers, and other criminals to launder their money, which is not something I would want to be involved with.
Transfer of funds is the lowest-hanging fruit. It's the most staring-you-in-the-face obvious application. Bitcoin's underlying utility is as a platform for decentralization in all types of applications.

In 1990, did you think the Internet was just for email?
Topic Author
boglerocks
Posts: 651
Joined: Sun Apr 03, 2011 9:08 pm

Re: Bitcoins as investment

Post by boglerocks »

EmergDoc wrote:Bitcoins haven't imploded yet? What's taking so long?

Oh well, I guess they're down 50% YTD. That seems to validate my opinion of them pretty well.
I bought in September for $100 and now they're $570 even after coming down 50% YTD. It's my opinion that is validated.
Locked