Bitcoin "Could Undermine Central Banks." Woo hoo!



Today on Bloomberg, this is the lede of a story about the rise of Bitcoin, the peer-to-peer virtual currency: 

An increase in the value of bitcoin, the world's largest online currency, may fuel concerns that virtual money could undermine the role of central banks.

Well duh. That's sort of the point.

Here's the deal: 

Greater demand for virtual currencies could have a negative impact on the reputation of central banks, according to a report published by the European Central Bank in October last year. Since the report was released, bitcoin has risen more than 55 percent against the dollar and use of the currency has surged.

Bitpay Inc., a bitcoin payment processing company that recently raised $510,000 in an investment round, this month announced that the number of companies using its services has increased almost 50 percent to more than 2,000 since November, when blog management firm said it would accept the digital currency.

"I think the ECB obviously is concerned, and it's not reputational," said Steve Hanke, a professor at Johns Hopkins University in Baltimore who helped to establish new currency regimes in countries such as Argentina and Bulgaria. "I think it's a competitive threat. Maybe virtual currencies will be so convenient that they will pose a threat because of their ease of use."

Here's me talking Bitcoin on Stossel:

NEXT: TX Governor Wants Power To Return Unspent Money to Taxpayers

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  1. Bitcoin is still around?

    I hadnt heard anything in about 2 years it seems, yall stop covering it.

    1. “…yall stop covering it”

      Is that you big brother? ;0

  2. “Full Faith and Credit”

    1. When what you are relying on boils down to “faith” and “credit”, you shouldn’t be surprised if it turns out to be, well, not much, really.

  3. This is the second time in as many days I have been reminded of a sign behind the bar at McSorley’s old Ale House.

    A bearded hayseed farmer, with corncob pipe and straw hat, is pointing his walking stick at a pig’s ass, and the caption reads,

  4. You know who else tried to create money out of thin air?

    1. Your mo…Issac Newton?

      1. I don’t think so, as Newton operated exclusively in the lower altitudes of the British Isles. Perhaps a well-educated Yeti?

      2. FoE’s mother doesn’t create money out of thin air. She provides a valuable service for it.

        1. Unlike Issac Newton. How dare he not foresee relativity!

          1. He foresaw it, he just didn’t bother publishing it. That’s the way Newton rolled.

            1. Newton is immortal. He just waited around until the world could appreciate his insight, curled his hair, established himself in Germany and took up a job in the Swiss patent office…

    2. The Montgolfier brothers?

      1. lead is a bit heavier than thin air

        1. Which weighs more? A pound of lead or a pound of thin air? Hmmm?

    3. Ghangis Khan… or was it Kublai Khan.

      One of them Khan’s…the one who Marco Polo visited.

  5. The real test will be when the first government issues debt denominated in Bitcoin.

  6. Are there plans to mint a trillion bitcoin coin? Because if so I could never take them seriously.

  7. So is bitcoin backed by plundered gold burried somewhere in the Philipines?


      1. I’ll agree with this.

      2. I call that the Stephenson. Write 1000 pages of interesting, loosely connected, intimately researched anecdotes and datum, spend zero time on plotting or writing the climax.

        1. We’ll just melt the gold out and finish up in a paragraph!


          1. Also, Anathem. And Diamond Age. Although, I guess technically the climax of Cryptonomicon was the minefield.

            1. Diamond Age was one of his best.

              I trailed off in the middle of his Tristram Shandy-like history of the world thingy.

            2. I thought Anathem was the first one where he really nailed an ending. It shifts gears a couple of times to get there but that felt like an ending to me. (and I thought the gear shifting was intentional – a feature not a bug)

          2. Seems to be a pattern. I was really frustrated by the ending of the Diamond Age as well. I haven’t decided whether to read any of his other stuff.

            1. System of the World is very good, if also very long. And it has so much ending it will leave you feeling like you were rode hard and put away wet.

              1. Yes. I also liked Reamde‘s ending. Well, found it acceptably climatic.

                1. Reamde was a blast. Any book where a kitty is the hero is all right with me.

                  1. That’s next on my list then 😉

                2. The only thing that bothered me about Reamde’s ending was the nagging sense that what took me about two hours to read could have been dealt with in about ten minutes of action movie footage.

              2. That really wasn’t an ending so much as the Stephenson failing to think up any more ways to torture his main character. “Let’s see…I’ve already cut off his dick…given him to the Inquisition…fuck it, he can get the girl.”

              3. Should probably mention here that one shouldn’t read just the final volume of the Baroque Cycle.

                Am re-reading System of the World right now. (First read the Baroque Cycle, then read Cryptonomicon, but since that is the right order one way but not the other way I decided I had to re-read Cryptonomicon and moved on to the Baroque Cycle because I wanted to get it both ways.)

  8. I have no idea how bitcoin works. Do you open an account with a deposit of Federal Reserve Bits, as if it is a conventional foreign exchange transaction, or what?

    1. Yes. You actually need bits (and pieces) of a Federal Reserve Bank. However, not all Fed branch buildings are worth the same. For example, a piece of the NY Fed will bring in far more than a piece of the St Louis Fed. The mother load is a piece of Ben Bernanke’s skid marked underwear that he crapped in when Ron Paul was questioning him in a Congressional hearing.

  9. Greater demand for virtual currencies could have a negative impact on the reputation of central banks . . . .

    Or the declining reputation of central banks is having a positive
    impact on the demand for virtual currencies.

  10. There will only ever be 21 million bitcoins (20,999,999.9769 to be exact). Either people of the future will be dealing in micro and nano bitcoins, which would be silly, or they will have to be re-denominated, or bitcoins won’t really account for that many transactions in the world.

    I’m guessing they’ll remain a novelty because as the number of transactions increase, the more of a PITA it will be to track and verify every transaction across the network.

    For bitcoins to become widely used currency, something about it will have to change.

    1. “Either people of the future will be dealing in micro and nano bitcoins, which would be silly”

      What is it about dividing a bitcoin that makes it “silly”? Are pennies silly?

      1. paying for everything in pennies would be silly

        1. If there were only 20 million dollars in existence you might not need “pennie…s”

          1. If you scale 21 million dollars to 21 trillion (about the M0 money supply) a loaf of bread would cost $0.000003 (3 microdollars) instead of $3.

            That’s silly.

            Granted, at the current exchange rate a loaf of bread would cost about 0.25 BTC, but that’s just because the BTC is in very few hands. If 21 million BTC were distributed among 300 million people and then some and the price remained 0.25 BTC, that would be a very expensive loaf of bread indeed.

            1. M0 is way less than 21 trillion. You’re thinking about M1.

      2. hit submit too soon.

        and paying for everything in micropennies would be even siller

        1. Its just a name, if a nanodollar could buy you a coke, its no sillier than a regular dollar.

          1. Sure, it’s just a name. It’s still silly.

  11. apparently there’s an “anti-cashist” movement that hates the tax dodging inherent in decentralized currency…

    True, it enables a paper cashless society but not with the attributes that the tax-efficient anti-cashists want. Without government checkpoints for financial institution wire transfers, bitcoin capital flows freely, without limits, and perhaps anonymously. The harmful tools of centralized monetary policy would also not exist. And finally, the taxation of income that began in the United States in 1913 would operate on the honor system ? the honor of the taxpayer, that is.

    1. The only taxes that are reasonable are the ones that you willingly pay.

    2. As long as you work for an employer in the US, your wages will always be subject to withholding. Even if you found an employer willing to pay in bitcoin without filing the appropriate tax documents (impossible unless tbeir business is fundamentally illegal), one would still have to convert bitcoin to cash or get it into an account somewhere to enable one to spend the value on necessities.

      1. “one would still have to convert bitcoin to cash or get it into an account somewhere to enable one to spend the value on necessities”

        Sort of like how I never see a check or cash and it is deposited into my checking account by my employer every week.

        1. That’s not my point. I was addressing the assertion in the quoted text that somehow bitcoin would make it harder for governments to collect income taxes.

          1. “I was addressing the assertion in the quoted text that somehow bitcoin would make it harder for governments to collect income taxes.”

            It is possible that it could make it harder but it’s not necessarily so. You are right.

            1. What it does make more difficult is governments’ and central bamks’ ability to use the stealth tax on inflation to transfer value from holders of their currencies to themselves.

              1. …stealth tax of inflation…

                1. both true.

  12. I once went to a talk by one of the Bitcoin people. Pretty cool shit.

  13. I’m a little confused by the premise. From what I can gather, the currency of the US is, by and large, virtual. It only exists in 0s and 1s with something like 90+% not existing in real physical dollars.

    Most of what is spent today is by way of plastic cards and online transactions, fewer and fewer purchases being made with real currency.

    I don’t understand how that is significantly different than Bitcoin with the notable exception of Bitcoin being all virtual.

    1. “I don’t understand how that is significantly different than Bitcoin with the notable exception of Bitcoin being all virtual.”

      “Every currency in the world (other than Bitcoin) is controlled by large institutions who keep track of what’s done with it, and who can manipulate its value. And every other currency has value because people trust the institutions that control them.
      Bitcoin doesn’t ask that its users trust any institution. Its security is based on the cryptography that is an integral part of its structure, and that is readily available for any and all to see. Instead of one entity keeping track of transactions, the entire network does, so Bitcoins are astoundingly difficult to steal, or double-spend. Bitcoins are created in a regular and predictable fashion, and by many different users, so no one can decide to make a whole lot more and lessen their value. In short, Bitcoin is designed to be inflation-proof, double-spend-proof and completely distributed.”

      Pretty cool stuff IMO

      1. Pretty cool stuff IMO

        Mine too! I seem to always be hearing from “visionary” leftists about how we should be trading locally, person to person, instead of relying on currency. Because “Money is the root of all evil.’

        1. You probably already know this, but it’s “LOVE of money is the root of all evil.” But even that’s not true. Lust for power is (not that there’s only one root of evil.)

    2. The idea is that it’s non expansionary. I don’t know what’s going to happen when you start to loan money in it which is inherently expansionary.

      1. It would necessarily be full reserve lending. You cannot create new bitcoins the way you can create new dollars.

        1. I dont think you are understanding fractional reserve banking. Lending has the effect of creating money because you deposit your money (and still own it) and I, the bank where you deposited it, loans a portion of it out to someone else, who also owns it. The net effect is an expansion of the money supply.

          1. not necessarily, you could have full reserve lending, too.

            Say I’m a bank, and you have deposited $1k. I make a rule saying, you will get a 1% per annum return on your $1k, BUT your deposit gets “unlocked” by $100 a year, and you accept the risk of whomever I match your loan to.

            Then I turn around and loan $1000 to Juice, and negotiate, say 4% interest rate and stipulate a minimum $100/year principal repayment schedule.

            This is full reserve lending, especially since if Juice messes up then MOFO eats it.

        2. no, but you could issue your own scrip that is convertible to bitcoin, which could be fractionally lent. Not many people would trust you, but you could do it.

    3. You’re right; Bitcoins are not unique in being virtual. They’re unique in being both virtual and decentralized. They’re the virtual analogue of gold or silver coins: Bitcoins are created (“mined”) via a distributed algorithm which is designed to limit their quantity, and transfers do not required a trusted third party (unlike credit cards or checks, which require banks to work). This video provides an overview. More information is here.

      1. Awesome, thank you for the response. I’ll check the links.

        1. A lot of goldbugs dislike the idea of bitcoins because “they have no intrinsic value”.

          This is wrong, because outside of a few specialized industrial purposes, neither does gold have an “intrinsic value”, in the sense that goldbugs like to say.

          Gold, does however, have “intrinsic value” in the sense that it is “money-like” – it’s fungible, limited, and verifiable. In the olden days (and again in the post-economic-apocalypse days) gold-verification is very low-tech since it is the only metal that has a yellow hue (thanks to the speed of light and d-shell relativistic contraction) – so a touchstone suffices to assess purity and create TRUST between the two transactants.

          Bitcoin, while it is “virtual” has those exact same “values”. It’s fungible, limited, and verifiable, although the verification is much more hightech than a touchstone.

  14. Damn my laziness! I had bitcoin installed last week and was going to buy a few just for the hell of it.

    1. nevermind, i’m an idiot that didn’t read. still should finish setting that up and getting some coins though

  15. Wow…this is actually happening. Mondo cool.

    1. No.

      Notice how bitcoin is framed as a “threat”.

      This is just the start of the propaganda war that will result in bitcoin being outlawed and their creators being put in prison.

  16. Bitcoins show all the signs of a manipulated, thinly traded asset. Arstechnica ran an article not too long back about how the great majority of bitcoin transactions were churning type trades where the end result was no bitcoins really trading hands. The obvious behavior going on is a single, or small cadre of users conspiring to make it appear as if bitcoins are more valuable then they really are.…..udy-finds/

    I wouldnt be suprised if the earliest adopters found a way to hack the algorithim that awards bitcoins via mining and socked away a huge quantity of BC and are now working to make those coins worth something.

    The idea of bitcoins? Sure, not bad. Bitcoins themselves? No way, not even with someone else’s money.

    1. Even if everything you said is true it still sounds like less of a scam then the US dollar.

  17. E-Gold still has over $500 of my money that I cant get out. The Feds will end up shutting down bitcoin the same way!

  18. Maybe virtual currencies will be so convenient that they will pose a threat because of their ease of use.

    I got a few bucks worth of bitcoins…and let me tell you it was a huge pain in the ass to get em.

    They are anything but easy to use.

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