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Digital Currency, Bitcoin And The Dark Web

Bitcoin and virtual currencies in the spotlight on Capitol Hill. We’ll look at the new world of digital money and the issues that come with it.

This April 3, 2013 photo shows bitcoin tokens at 35-year-old software engineer Mike Caldwell's shop in Sandy, Utah. Caldwell mints physical versions of bitcoins, cranking out homemade tokens with codes protected by tamper-proof holographic seals, a retro-futuristic kind of prepaid cash. With up to 70,000 transactions each day over the past month, bitcoins have been propelled from the world of Internet oddities to the cusp of mainstream use, a remarkable breakthrough for a currency which made its online debut only four years ago. (AP)

This April 3, 2013 photo shows bitcoin tokens at 35-year-old software engineer Mike Caldwell’s shop in Sandy, Utah. Caldwell mints physical versions of bitcoins. Bitcoins have been propelled from the world of Internet oddities to the cusp of mainstream use, a remarkable breakthrough for a currency which made its online debut only four years ago. (AP)

 

Bitcoin is all over headlines this week.  The virtual currency – digital money – that can buy you anything, if you know where to go, from a bag of groceries to a bag of heroin.  The Winklevoss twins are into it – big investors.  The Chinese are into it – it’s kind of anonymous and not the dollar.  The Silk Road was into it – the online emporium for sex and drugs that took only bitcoin.  This week Ben Bernanke said banks may one day use it.  Four years ago, it was worth a buck.  This week, it briefly hit $900 dollars.  Per bitcoin.  Up next On Point:  the crypto currency.  All about bitcoin.

– Tom Ashbrook

Guests

Andy Greenberg technology, privacy, and information security reporter at Forbes Magazine. Author of “This Machine Kills Secrets: How WikiLeakers, Cypherpunks, and Hacktivists Aim to Free the World’s Information.” (@A_Greenberg)

Robin Sidel, senior special writer at The Wall Street Journal.

Susan Athey, professor of economics at Stanford University’s Graduate School of Business. Senior Fellow at the Stanford Institute for Economics Policy Research.

Sen. Tom Carper, U.S. Senator. (D-Delaware). (@SenatorCarper)

From Tom’s Reading List

Wall Street Journal: U.S. Officials Set to Address Bitcoin at Senate Hearing — “Officials from the U.S. Secret Service, which investigates counterfeit currencies, and the Treasury Department’s Financial Crimes Enforcement Network made similar remarks, detailing successful criminal investigations into virtual currencies and the need to ensure that companies that deal in bitcoin comply with money-laundering rules where appropriate. Fed Chairman Ben Bernanke, who isn’t testifying Monday, said in a letter to the Senate committee that while virtual currencies ‘may pose risks related to law enforcement and supervisory matters, there are also areas in which they may hold long-term promise, particularly if the innovations promote a faster, more secure, and more efficient payment system.’”

Forbes: Meet The ‘Assassination Market’ Creator Who’s Crowdfunding Murder With Bitcoins –”Like other so-called ‘dark web’ sites, Assassination Market runs on the anonymity network Tor, which is designed to prevent anyone from identifying the site’s users or Sanjuro himself. Sanjuro’s decision to accept only Bitcoins is also intended to protect users, Sanjuro, and any potential assassins from being identified through their financial transactions. Bitcoins, after all, can be sent and received without necessarily tying them to any real-world identity. In the site’s instructions to users, Sanjuro suggests they run their funds through a “laundry” service to make sure the coins are anonymized before contributing them to anyone’s murder fund.”

The New Yorker: Dark Wallet: A Radical Way To Bitcoin — “Wilson and Taaki’s project, tentatively known as Dark Wallet, is a simple wallet designed to be easier to use for people who aren’t tech-savvy; they hope that in turn accelerates the currency’s rate of adoption around the world. The wallet will be open-source and free to use. Eventually, Wilson and Taaki hope to create a vast stable of Bitcoin-related tools. The goal, for Wilson, is similar to what he tried to do with the Liberator: use technology to remove government intervention from his life, and from the lives of like-minded people.”

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  • HonestDebate1
    • nj_v2

      Are you going to duplicate all the links given in the background reading list?

  • http://profiles.google.com/barry.kort Barry Kort

    It’s not really about BitCoins, per se. It’s about destroying the power of the moneyed class by destroying the value and power of government-defined money as they have known it.

    The government-chartered banks are scared to death of the advent of mathematically-defined crypto-currencies.

    The French Revolution to overthrow the Aristocrats was, to a first approximation, a tax revolt.

    The American Revolution, to overthrow the Monarchy was, to a first approximation, a tax revolt.

    The 99% is a similar movement, to overthrow the phenomenon of the concentration of wealth in the hands of a tiny few who then use their wealth to control the political machine.

    But this time, it might not be a bloody revolution. Rather it might be a technology revolution which destroys not the moneyed class, but their money itself, and supplants it by a democratized currency invented by the technocracy.

    The issue, of course, is whether the operatives of the technocracy will operate fairly, equitably, reliably, and in a trustworthy manner.

    The concern is whether systems like BitCoin can be hacked, corrupted, or otherwise rendered just as revolting as our traditional systems of monetary exchange, subject to unjust and confiscatory taxation by unscrupulous operators.

    • ToyYoda

      I don’t see the money class being deposed for several reasons. In the early days of bitcoin, you need money to buy them. That is still largely true today. And since the money class has the most money, they can get the most coins. You could also mine bitcoins, and that takes expensive hardware to do, and not to mention electricity. The equations to mine bitcoins have gotten hard enough that the power needed to mine them is break even.

      Also, even if you overthrow the “money class”, I’d be wary of what results. You can rule others with money, but you can also rule others with weapons.

      • http://profiles.google.com/barry.kort Barry Kort

        They cannot buy any more than have been mined (and that is capped at 21 million BTC). If all that money went chasing after BitCoins, the price would skyrocket. But then what would the BitCoin hoarders do with all those BTC?

        • ToyYoda

          They could buy weapons? And you’d have a ‘weapons class’, which I’m not sure is better.

          A weapons class or money class maybe there is no difference who the ruling class is. At least with a money class there’s a veneer of civility, weapons classes are often associated with slavery.

          • http://profiles.google.com/barry.kort Barry Kort

            What would the Walton heirs want with an army?

          • ToyYoda

            You haven’t really addressed the issues I brought up. A power class will exist whether its due to paper money or crypto currency. I’d still submit that the scenario you give is a false promise. There may be a decentralization of power away from governments, but it will go to fiefdoms instead.

            Given that a good deal of bitcoin is used by drug dealers more than the Waltons, I think the scenario I laid out is a more likely outcome of a bitcoin based economy.

          • http://profiles.google.com/barry.kort Barry Kort

            The wicked will always be with us. There is no known cure for Axis II Cluster ‘B’ Personality Disorders.

            The best strategy to disempower them is to avoid doing business with them as much as possible. Unfortunately, it is hard to live on this planet without doing business with the government and with big business.

    • Omaha Guy

      oops…

      huge mistake…

      because we americans believe in no taxation without representation, your view does not fully fulfill those ideals.

      now that we can watch money, i don’t want criminals to watch my money. (nor foreign non-elected leaders) to see my patterns.

      As a privacy concern, i want “information by representation” also.

      • http://profiles.google.com/barry.kort Barry Kort

        Representation to do what? It’s not like the BitCoin technocracy is doing anything other than creating a distributed electronic marketplace for trading the solutions to some arcane hash function puzzles.

    • JamesG

      BTC valuations are more easily manipulated than fiat currencies. All you have to do is buy or sell a bunch of them to swing the value.

      • http://profiles.google.com/barry.kort Barry Kort

        If you cornered the market on tulips, you might make a killing if tulips were in demand. But you might end up with a lot of tulips that the average gardener isn’t willing to buy at exorbitant prices, given that tulips are not a necessity of life.

        Manipulating the price of BitCoins would probably be even a dumber thing to do, because one could end up owning the solution to millions of hash function puzzles that have no intrinsic value.

        • Labropotes

          Not to mention that governments manipulate the value of their currency every single day. Following Gresham’s law, China has begun to shrink its holdings of US dept and has imported over two thousand tons of gold in the past year.

  • Ray in VT

    I think that I’m going to stick with my Burt Bucks.

    • nj_v2

      I have some Monopoly™ money kicking around somewhere.

      • Ray in VT

        Go with Life money. Bigger denominations.

        • TFRX

          But there’s no BitCoin edition of Life coming out, denying me the fun of picking a Chance card that says “Bank Error in Your Favor. Collect one hundred BitCoins.”

          • Ray in VT

            My wife and I had to go online to get the edition of Life that we liked. We really dislike the redesigned version that they started putting out a few years ago, and we’re big board game fans.

          • TFRX

            It’s been many years for that game.

            Wasn’t marriage compulsory in Life when I was a kid, and is it still?

            (I’m not gonna even touch my memory that that happened at a church.)

          • Ray in VT

            Yeah, I think that you still have to get married, and in the old game you did stop at the church.

            They really messed around with incomes and careers, so you can be a rock star that makes 20k or a bank teller (or something) that makes 200k. The cost of your house is random, plus I think that you can choose to swap incomes with another player. I just don’t like it.

    • AC

      ok. i have to know – what are Burt Bucks?

      • Ray in VT

        It is from an episode of Raising Hope from last week. Have you ever seen the show?

        • AC

          no. i have heard of it though…

          • Ray in VT

            It is from the same creator as My Name Is Earl. My wife and I love it. It’s weird, often absurd and most of the characters are downright dim, but it is pretty funny.

            The summary of this particular episode, though, is this: a customer can’t pay one of the main characters for some yard work. Pays him in lobster. They notice how much more that they can get by cutting out the middlemen. They get a bunch of people together to barter and save them all money. Some people don’t have stuff that people don’t want to barter for, so then they need something to represent the value of the goods and services, and Burt Bucks are born. Hilarity, and ultimately calamity, ensues.

    • TFRX

      BurtBucks? From speculating in Burt’s Bees products?

      Insider hint: Their lipbalm futures really are trending up, along with Bag Balm. Happens every November.

      • Ray in VT

        No, not Burt’s Bees, but maybe I should try to game the lipbalm market. Bag Balm works pretty well for such things as well.

        • TFRX

          I’m glad a RealVermonter(TM) says so.

          Cos I’m a city slicker who wonders, sometimes, if “Vermonters Love It!” is just a clever way of getting me to buy things made there.

          • Ray in VT

            We always had it around, although to reduce udder swelling my brother has gone to something called Udder Comfort, but I feel that Bag Balm still has its uses.

          • hennorama

            Ray in VT — pssst .. don’t tell the city slickers that Bag Balm was formulated for use on cow udders.

          • Ray in VT

            I won’t if you won’t. Farmers are pretty utilitarian in my experience. That’s probably why my father used to use Absorbine on his leg when his arthritis acted up really badly.

          • hennorama

            Ray in VT — good ol’ Absorbine.

            I recall using it long ago, to treat a particularly smart sow, who would lie down unprompted to receive her treatment. I’m still not sure if she was cued by the color of the bottle or the smell of the liniment, but it was clear that she associated Absorbine with feeling better.

            Thanks for the interesting tangent.

          • Ray in VT

            You’re welcome. I saw some Absorbine the other day when I had to stop by the Co-Op store for my brother. Boy that stuff stank to high heaven, but I guess that it helped my dad or else he wouldn’t have used it. I’m not sure that it is recommended or safe for people, but that didn’t stop him.

          • hennorama

            Ray in VT — the people product is Absorbine Jr.

          • Ray in VT

            Really?

          • hennorama

            Ray in VT – yep. See:

            http://www.absorbinejr.com/

          • Ray in VT

            Huh. You learn something new everyday I guess. Thanks. I’m willing to bet that it doesn’t smell nearly as bad.

          • hennorama

            Ray in VT — you’re welcome. The ingredients are virtually identical, with only a slight variation in formulation. But there’s no getting around the menthol aroma, since it’s the active ingredient.

            That reminds me — there’s also a horse shampoo called Mane & Tail that’s reached crossover status.

          • Don_B1

            If you want an alternative and don’t mind increasing Indiana’s economy then ChopSaver is a nice (likely the best) lip balm developed from natural ingredients for wind instrument players, particularly horn players.

  • alsordi

    Anybody remember Rep. Alan Grayson from Florida, grilling Bernanke and the so called Fed Inspector General about the unaccounted trillions of dollars? The private bank called Federal reserve creates money for their pals at the banks who create more money on their own. Then they lend this money really cheap to their cousins on Wall Street to make more money for themselves. But Joe and Mary Jones gets turned down for a home loan because of their credit score.

    Lets all start using gold, without fractional reserve banking, and at least we’ll ( the little people) have a more EVEN PLAYING FIELD.

    • Omaha Guy

      your view does not work.

      are you suggesting that my health care, and property value, and everything…. be placed on the volatility of gold…

      that ability to manipulate the price of gold, is a form of taxation without representation.

      • alsordi

        Hey Omaha, FYI your health care, property value and everything is actually placed on the volatility of the dollar. If you want to see the REAL dollar value…just look at the price of gold over the long run.

      • alsordi

        … and just who is doing the manipulating of gold ??? The Fed and their psuedo banker cronies of course. Take away the power from these crooks and gold will establish natural values.

        BTW “Inflation” is a form of taxation without representation.

        Your arguments are way to superficial.

    • Don_B1

      Auditing the Fed is a false goal while learning about how it works might help everyone understand why it is doing what it is doing. See:

      http://krugman.blogs.nytimes.com/2013/11/18/question-fed-policy-sure-audit-it-no/?_r=0

      Be sure to follow the link to Mike Konczal’s post for the necessary details.

      • alsordi

        Very few people understand the workings of the FED, but most of those who do (outside of wall street) are outraged.

    • Don_B1

      Once the Great Depression had spread across the world, it was the countries that got off the Gold Standard first that first started recovering from the recession that started it.

      Today the European “Lesser Depression” is marching on with no real recovery in sight because the elites are forcing austerity on the peripheral countries, which cannot devalue their currencies because they are using the same currency, the euro, which is acting like a Gold Standard for those countries using the euro.

      To the extent that BitCoins could act like a Gold Standard recovery from big recessions will be made much more difficult. The world will be back in the high volatility of prices, employment, etc., that dominated it before the Great Depression, except with the greater financial connections with the Internet and global trade, which will likely make it even worse.

  • northeaster17

    Saw a segment on this on RT TV last night. I know little about this subject and I’m sure that the two talking reporters knew just about as much as I did. They did talk alot about how the government is trying to figure out how to regulate the bitcoin. The guise will be to protect the Fed and the dollar at all costs. If the Bit really catches on expect to see powerful entities trying to choke the life out of it.

    • Omaha Guy

      the ability to manipulate the value of bitcoin…

      THAT is a form of taxation without representation….

      who could manipulate that value…. the conversation continues…

  • Bluejay2fly

    In Cypress when the banks froze and confiscated a percentage of the accounts holder’s money some people used bitcoins to withdraw all the money before the bank’s could stop them. Hurray for bitcoins in that case!

    • Omaha Guy

      greece… and the euro…

      it all boils down to… you guessed it…

      the ability to manipulate a currency without the real representation of those who hold that currency…

      THAT is a form of perverse taxation without represenation.

      bitcoin is a workaround of a good and worthwhile principle of capitalism.

  • gatomalo2

    Bitcoin the New World Currency for the New World Order – I have a Bitcoin Wallet that cannot be lost or stolen. come to http://bitcoinwalletnetwork.com/blog and check things out.

    Too many Wallet service have had millions of Bitcoins stolen because they give other access to their Bitcoin wallets.

    Bitcoin is here to stay the world power were afraid of it untill they figure out the game rules and now we see BTC flexing it’s muscles at almost 900 usd. By the way CHina is buying into Bitcoins 3 to 1 – check out my Bitcoin by Country LIVE map http://ec2-107-22-93-245.compute-1.amazonaws.com/leak/index.html

    America does not control Bitcoin the world control it, the new world order is Bitcoins. IMHO gatomalo – uscyberlabs.com/blog/

    • AC

      don’t get too crazy, it could be tulips….

  • ToyYoda

    One of the original appeals of bitcoin was that the (eventual) maximum number of coins in circulation will be fixed, and so its value could not be diluted through “printing”.

    But, I wonder if that appeal is negated by the fact that “anyone” can make another bitcoin-like money? I’ve already heard of litecoin, and I think there are others coming .

    • http://profiles.google.com/barry.kort Barry Kort

      There are many other crypto-currencies besides BitCoin, but they are still fairly small ventures, with technical variations that must be considered experimental alternatives.

    • http://hammernews.com/ hammermann

      That isn’t good for a currency, only investment, since it means value is going to go up, or down (when people get ripped off) radically. A currency should be stable- sounds a little like a scam

  • Fiscally_Responsible

    Should be an interesting discussion. As a financially conservative person, I do not understand how anyone can attach a value to a bitcoin or any other created currency unless there is something backing it up (assets, a sovereign government, etc.). I trust that the discussion will shed light on this.

  • AC

    finally! i’ve mentioned bitcoin in other posts when you do a show on economics – the subject i am most ignorant about & loathe to trust!! I have heard of bitcoins for awhile now and was thinking about it, but there was a rumor of the mt Gox lawsuit that made it seem unstable – can you discuss what that was about? thanks!! i’m trying to learn what bitcoin all really means …

  • Fiscally_Responsible

    I guess if bitcoins were being used to finance a drug deal and one of the parties threatened to break your kneecaps if somehow you didn’t make good on your bitcoins, that would provide some basis for valuing the virtual currency.

  • nj_v2

    Bitcoin is but one model for an alternative currency system. Admittedly unfamiliar with it, at first blush, it would appear to replace a government system—theoretically, at least, subject to the whole of, by and for the people thing—with a somewhat mysterious, virtual system with management bot inscrutable and unaccountable to potential users.

    Other possible systems, apparently lacking the implied sinister aspects of Bitcoin, include various local and regional efforts to develop “alternative” currencies to encourage economic resilience and sustainability at the local level.

    http://www.berkshares.org/about/index.htm
    (Local currency for the Bershire region)

    http://makewealthhistory.org/2009/09/17/alternative-currencies-and-beyond/
    (Alternative currencies, and beyond)

  • Omaha Guy

    this conversation is way out of date….

    not only are the american, russian, and chinese intellegence services already monitoring the flow of bitcoins…

    so are even small countries.

    the real question is, when shall american credit card companies step up and be bigger than crappy bitcoin setups?

    the dhs already uses canadian and indian credit card services to monitor the use of credit cards of regular law abiding citizens….

    therefore…

    the real topic here is … the use of foreign governments to keep track of credit card purchases.

    why should canadadian and indian governments know more about american citizens than our own elected officials?

    is this knowledge a form of information without representation?

  • nj_v2

    I was fairly ignorant about Bitcoin when the show started. Mr. Greenberg’s attempt at explaining the basics was thoroughly confusing.

  • JasonB

    The US and other governments don’t like Bitcoin because it can’t be controlled. The thing that worries me is that Bitcoin is far less stable than the US dollar.

  • http://neilblanchard.blogspot.com/ Neil Blanchard

    Cash gets used for bad things and good things all the time – so bitcoin is virtual cash for use on the Internet.

  • AC

    meh, i’m not into speculation or making lots of money or drugs or human trafficking, so i think i’m out of this game…

    • JamesG

      Probably wise.

    • TFRX

      I would like to know if the Enronistas take up BitCoin.

      Lie down with dogs, etc.

  • JamesG

    Bitcoin and all all crypto-currencies are manifestations of the loss of confidence in sovereign fiat currencies. As governments inflate their currencies and reduce the value of that held, it increases the value of alternatives, be they gold, or other medium. So bitcoin isn’t gaining in value, the US dollar is becoming weaker in relation to the perceived value of bitcoin.

    • ToyYoda

      Just as the guest said, there is nothing to stop the government from issuing it’s own crypto currency. And if governments require taxes from its people paid in it’s crypto-dollar, I see a lot of bitcoin’s allure and use diminished.

      • JamesG

        A government has no need or utility to create a crypto-currency. They issue currencies to promote trade and economic activity and maintain control over it to effect policy and to adjust activity.
        Crypto-currencies do not have those controls.

        • http://profiles.google.com/barry.kort Barry Kort

          One of the objectives of government is to facilitate trade (both domestic and international trade). If mathematically-defined crypto-currency enables domestic and international markets to operate more efficiently, governments will adopt it.

          There was a time when governments schlepped gold bars around. Then they just kept ledger books indicating who owned them. Mathematically-defined crypto-currency is just another innovation in keeping track of who owns what.

      • http://profiles.google.com/barry.kort Barry Kort

        If the efficiency of mathematically-defined crypto-currency surpasses the efficiency of existing wire-transfer systems, the economic marketplace will adopt the technology once it’s proven to be secure and reliable.

  • gqlewis

    Bitcoin has a dark side that cash can never have because it moves at the speed of the net. That is a very scary proposition. The fact that it is largely unregulated makes it even more frightening.

    • Labropotes

      The money we use now is kind of regulated and it loses 1.5% of its value a year nowadays, and has lost about 96% of it’s value since the creation of the Federal Reserve Bank.

      • Labropotes

        The 96% loss of value is from the Fed’s web site. Interestingly, the same site indicated that in the 100 years prior to the Fed, the dollar had gained 76% in value! Now I know why hiding currency in one’s mattress was once fiscally responsible.

      • Don_B1

        The important number is the yearly inflation, not the accumulated inflation (i.e., devaluation) over a lifetime.

        People earning or receiving money accept an amount equivalent to the work performed or item sold with the expectation that they will use that money to purchase equivalently valued goods (as if they performed a barter operation directly) or place the money where they expect it to earn interest (the “reward” for delaying their use of the money) which will be enough to cover both the expected inflation and provide a sufficient reward.

        What is necessary is that the level of inflation be small and stable. Additionally, an economy that could enter a deflationary period is subject to forces which can lead the economy into spiraling deflation as people delay spending waiting for lower prices the “next day” thus bringing the economy into a huge downward spiraling recession. Those are the requirements which led economists to determine that in “normal economies” the practical inflation rate is around 2%/year, and that is the “stable prices” mandate for the Fed to balance with its other mandate, for maximum employment.

        • Labropotes

          I think your explanation is the best among a range of possible explanations for the “need” for inflation.

          Inflation also imposes a penalty for taking one’s chips out of the game. Don’t like risk? Fine, we can take your purchasing power over time.

          Today, to match the CPI indicated inflation rate in “risk free” return, you need to commit your money for at least 5 years. And that investment is subject to massive risk. A return to 5% rates would knock ~15% off your investment. See any upside risk?

          From 1800 to 1900 prices decreased by 43% in dollar terms while consumption and investment skyrocketed.

          Finally, after 5 years of the most aggressive Fed efforts in history to stimulate investment and employment, the percentage of working age Americans with a job is 0.1% above its post 2008 lows. Time to revisit your faith?

    • JamesG

      It is supposed to be self-regulating. The holders and market of BTC is supposed to control the value and supply of the currencies.

      • Don_B1

        Just like Alan Greenspan had faith in the “free market” to avoid creating financial crises, like the one exacerbating the recession of 2007-2009, making it the Great Recession.

  • Amy L.

    Isn’t bitcoin just a virtual commodity? You buy it, then have to sell it to complete most transactions, or go thru a middleman. And why should libertarians like it? Sooner or later, it will disappear, become a niche commodity, or be regulated by multiple governments (or, horrors, the IMF or UN).

    • kail

      libertarians like it because its value is not intrinsic to the faith and credit of a sovereign government. Rather its quantity is fixed and it’s value is maintained by the difficulty–in energy consumption of computers–of obtaining it.

      If you have to trade it for a real currency– one with a stable value and high market cap (USD ect)– to use for anything useful- this falls apart.

      • http://neilblanchard.blogspot.com/ Neil Blanchard

        Any currency depends on faith in something – it is an agreement that something is valuable and to be used in exchanges.

        • kail

          Please excuse my ignorance on central banking; I design computer chips and have woeful experience in economics. I guess what I was trying to refer to but failed to was the determinism of currency supply. While a central banked currency supply morphed by human sources modifying interest rates; supply of bitcoins are fixed and the minimum effort of acquiring them is guaranteed by entropy of the universe requiring that we dissipate heat when we twiddle bits on our computers.

          While I–personally–believe a cyrpto-gold standard is silly. I assume that is why libertarians among us like it.

          • Don_B1

            I totally agree that a “crypto-gold standard” is as silly as a real Gold Standard, which allows the booms and busts that regularly occurred before the Great Depression, when the U.S. separated itself from such constraints on the control of the “free market’s exuberance.”

  • AC

    discus the mt gox lawsuit please

  • Omaha Guy

    bitcoin, and those like an bitcoin, seem like an attempted workaround…

    of a REAL WORTHWHILE PRINCIPLE… no taxation without representation.

    those who may manipulate the value of bitcoin, like those who manipulate stocks, are essentially taxing (and cancelling value) of other bitcoin users.

    and, when our government targets (correctly) the evil activities, as well as foreign governments… does a foreign government monitoring my transaction a form of “information taxation” without representation?

    omg… since so many criminals are attracted to it… what does that suggest about privacy and ethics and theft and so on….

  • sickofthechit

    I have envisioned for a decade or more a currency based on our time. So affordable health care or Medicaid would cost each of us say 4 hours per week. That way the lawyer making $250/hour, the waiter making $10/hour and the disabled person would each be paying the “same” 4 hours. It would “cost” in dollar terms one person $1,000, another $40 and the disabled person 4 hours. Whose to say that is not fair? It won’t work for everything, but it will work for what should be basic human rights. Charles A. Bowsher

    • warryer

      What is the incentive then to do more difficult work? If I could clean floors instead of solving complex math problems and still receive the same amount of compensation, I would be a fool to choose to going into math.

      • http://profiles.google.com/barry.kort Barry Kort

        I guess if you were going to buy a robot to do either of those tasks, you’d probably be better off buying a robot to solve hard math problems.

      • sickofthechit

        Self-fulfillment.
        Your not spending all your time paying for basic human rights (food, water shelter, health-care and education). There is still plenty of time left for making money.

        • OnPointComments

          Along the lines of warryer’s comment, your scenario ignores the value of the service being provided. Should the brain surgeon who spends years and years in school, and practices a very complicated, risky, and expensive profession, be paid $80 for an eight hour surgery on the waiter?

          • sickofthechit

            If we take as our “universe” the lawyer and the waiter then the doctor would be paid a portion of the $1,080 collected from those two. ($250 + $10) X 8= $1,080.

          • warryer

            Only in a universe of no scarcity does this work.

      • Don_B1

        The pleasure of doing the work!

        There is a real feeling of achievement in solving a difficult math problem for the ages that goes beyond the justified pride in a real clean floor that someone is going to mess up in a day or two.

        • warryer

          The people who clean floors now must really feel the pleasure in doing so. That must be the case otherwise they could spend the time and effort to get a higher paying job in solving math problems.

          I would hate to take away all the extra hours of pleasurable work they’d be doing to pay the cost of healthcare.

          • Don_B1

            There are not enough open jobs solving math problems right now, so you want the floor cleaner to take a job from someone doing that?

            And how is the floor cleaner to learn how to solve difficult math problems when he was so hungry in school that it was physically impossible for him to pay attention in class? Or his home life was so chaotic that he could not get the necessary sleep to be attentive in school the next day? How does he get the money to go to school to learn now?

            I am sure you dismiss such problems, but they are real.

    • hennorama

      sickofthechit — there’s a recent film with a plot involving time as currency, titled ‘In Time.’ To read plot summaries from IMDb, go here:

      http://www.imdb.com/title/tt1637688/plotsummary?ref_=tt_stry_pl

      • fun bobby

        that society was dysfunctional as well

  • Yar

    Isn’t the dollar already a virtual currency. Only .01 percent is in cash.

    • JamesG

      Yes.

    • fun bobby

      shhhhhh you’ll ruin it

  • Fiscally_Responsible

    Maybe one can sign up for Obamacare using bitcoins since bitcoins are a figment of our imagination as is a viable Obamacare website and financial model.

  • Labropotes

    Is it just me, or do the guest seem rather ignorant on the subject?

  • Fiscally_Responsible

    Actually, if Obamacare can be modified so that the purchase of illegal drugs are part of the new health care plan, it looks like bitcoins can be used for Obamacare.

    • fun bobby

      in Canada they have had to stop subsidizing cannabis due to expense

  • http://hammernews.com/ hammermann

    Very strange stuff. With it’s wild fluctuations, don’t know how people can trust it. What is bank’s commission to convert money to BC? They don’t work for free.

    • http://profiles.google.com/barry.kort Barry Kort

      Initially, there is no charge to the end users who are exchanging dollars for BTC. Instead the operators of the distributed exchange system earn newly minted BTC for running the exchange network. This is like employees of a start-up working for stock certificates instead of pay. Eventually that compensation model will be supplanted by one which charges direct transaction fees.

  • sickofthechit

    A way to avoid inflationary currencies? really? at $900 a bit coin it sounds hyper-inflationary to me.

    • http://neilblanchard.blogspot.com/ Neil Blanchard

      WHO decides what the rules about bitcoin are?

      • http://profiles.google.com/barry.kort Barry Kort

        It’s hardwired into the algorithmic calculations that define the operation of the BitCoin exchange system.

        • nj_v2

          Whew! Glad you cleared that up!

        • sickofthechit

          Sounds like a bit of magical black-box to me.

          • http://profiles.google.com/barry.kort Barry Kort

            To those who do not apprehend arcane mathematics, most high-technology systems are indistinguishable from magic.

        • http://hammernews.com/ hammermann

          And who is running these algorithms? Where is the central command that enforces any rules?

      • JamesG

        the architecture of the bitcoin exchanges.

    • JamesG

      Only because you are valuing them in USD which is declining in value. It’s simply that the leverage ratio exaggerates the effect.

      • Don_B1

        The devaluation of the USD is nowhere near as volatile as BitCoins. There is no correlation.

    • fun bobby

      hyper deflationary

  • Jim

    Treat bit coin as a form of gold or silver. Treating it as money is the wrong analogy. The b-coin does not have a federal reserve to impose monetary policies such controlling short term interest rates. Its value is based on demand and nothing more. But what happens if that demand stops suddenly? The tulip story?

    • JamesG

      Its value is based on perceived limited supply. There are only X amount in circulation and only Y number total. Which is cool for a commodity like gold or art, but not for a medium of exchange.

      • Jim

        Correct. Any purchase is fairly limited using bitcoin. Ok, criminals would advocate the use of it. But not all consumers are qualified to be criminals.

        • JamesG

          Very limited. Kind of hard to buy or sell something when the value of the currency you are using can fluctuate wildly…

    • fun bobby

      there have been a few bitcoin market collapses, its a very volatile currency

  • mairelena

    The US dollar has been the standard for international trade for decades now. Why would someone who has access to the US dollar want to use something else? Using Bitcoin sounds to me just like doing your transactions in foreign currency when you don’t have to.

    • http://profiles.google.com/barry.kort Barry Kort

      The main economic advantage (if the price of BitCoin were stable) would be to save on transaction fees and currency exchange fees.

    • Labropotes

      Because the Fed is creating $85 billion in US dollars every month, diluting the value of everyone else’s holdings of US dollars. If you acquire the right to consue a $1 worth of stuff without having earned it by the creation of a $1 worth of stuff, you are robbing the rest of us.

      • sickofthechit

        The fed money should be moving through each or our bank accounts before it hits the system. We have the obligation, we should have the use of it. Each month if we have say 300,000,000 people we would each get nearly $300 in our accounts. Not to shabby from where I sit.

        • Labropotes

          I think your analysis is good. But if you have the obligation to pay the bill, why would you want someone to automatically issue you $300 worth of debt?

          • sickofthechit

            Aren’t I already obligated for the “debt” equivalent to the money printed by the fed each month?

          • Labropotes

            Who’s going to fund the oligarchy and the endless war? No, you can’t have your share.

        • geraldfnord

          And, of course, no vendor would raise their prices or employer reduce wages to devour the increase.

          I’m sorry, but as long as there is material scarcity, any viable currency _must_ make life worse for some people as a form of rationing.

  • sickofthechit

    Just another PONZI scheme if you ask me. You’ve been warned.

    • JamesG

      Yup. “HI, I have these bitcoins I “made” for free, Want to buy them from me?”

      • http://profiles.google.com/barry.kort Barry Kort

        Solving an arcane mathematical hash function puzzle cannot be done at zero cost. Most people can no longer afford the cost of electricity to mine new BitCoins.

        • JamesG

          It is zero cost if you just have a computer or network of computers churn through it. And even if it didn’t, a currency is supposed to be just a medium of exchange, not a commodity in and of itself. That makes BTC a speculative investment, not a currency.

          • http://profiles.google.com/barry.kort Barry Kort

            Hardware is not free, and neither is electricity. Solving the mathematical hash functions required to support a crypto-currency requires a lot of computing power which draws a lot of electric power. On a typical desktop computer, it is no longer cost-effective to join the BitCoin network, as the cost of electricity exceeds the value of the BTC one earns from joining the network.

          • http://neilblanchard.blogspot.com/ Neil Blanchard

            Right, it is just an arbitrary rules, like any other currency. But, unlike the shell beads that have been used in the past, bitcoin mining is only available to people with a lot of computer hardware. The sea shells used for those beads were presumably available to everybody participating in that currency; though you would have to also have the tools to form the beads.

          • geraldfnord

            A rough rule:

            In practice:

            ism, n. : a system designed to privilege ists.

            …(case-change intentional).

          • http://profiles.google.com/barry.kort Barry Kort

            It’s not a rule-based system. It’s a function-based system, where the functions that define the system rely on somewhat arcane mathematical calculations.

          • geraldfnord

            So this is a species of specie whose value is tied intimately to the nonexistence of cryptoänalytic breakthroughs, e.g. cheap quantum computing, which would have an impact on cryptocash similar to that which the crashing of a bunch of gold metorites’ all across the globe would have on a goldbug’s composure.

          • Ray in VT

            Well, when you put it like that it makes it sound crazy. ;)

          • http://profiles.google.com/barry.kort Barry Kort

            There is no realistic expectation that quantum computing (cheap or otherwise) will yield a breakthrough in cryptanalysis.

          • JamesG

            Yes, which is my point. BTC favored those with the resources to collect them. How is that “fair”? So the originators of BTC and those who were early adopters (miners) that are sitting on a bunch of the easily aquired BTC now turn around and sell them to speculative late comers who are attracted to the apparent increase in value. Ie: its a pyramid scheme that depends on a constant stream of new entrants (buyers or “miners”) to keep the value elevated and expanding.

          • http://profiles.google.com/barry.kort Barry Kort

            It’s not a Ponzi scheme because anyone can enter or leave the BTC market at any time. Nor is there any claim that BTC is backed by any tangible asset.

          • JamesG

            But the expectation is that they will gain in value. They most certainly have for existing holders of BTC. And that value and expectation of increase is dependant upon continuing growth in demand & new entrants. Bitcoin is not a stable currency but a synthetic speculative commodity like comic books or baseball cards.

          • http://profiles.google.com/barry.kort Barry Kort

            At the end of the day, they have value if they facilitate and lubricate international trade better than existing methods of mediating international trade.

          • JamesG

            There are better solutions for that. Such as a currency that has its value pegged to the aggregate demand of all the world’s currencies while incorporating BTC’s decentralized validation and security features.

          • http://profiles.google.com/barry.kort Barry Kort

            It will be interesting to see if the upsurge in interest and attention to BitCoin in particular and mathematically defined crypto-currencies in general results in innovative advances leading to an optimally designed global electronic currency.

          • JamesG

            Hopefully. It would be useful to find mediums of exchange that were resistant to the whim and manipulation of politicians and the powerful.

          • http://profiles.google.com/barry.kort Barry Kort

            That’s one of the intriguing features of new technologies including mathematically engineered methods to solve the systemic problems inherent in traditional government processes.

  • JamesG

    The “mining” of BTC has always been the feature of it that I never liked. Too much like a pyramid scheme where the first adopters and those with the most resources (computer hardware) gain an unfair financial advantage.

    • http://profiles.google.com/barry.kort Barry Kort

      Once the limit of 21 million BTC has been reached, the present lottery method of running the distributed exchange backbone will shift to a transaction fee model.

      • JamesG

        yeah, its still just as scam.

        • http://profiles.google.com/barry.kort Barry Kort

          It’s no more a scam than any commercial marketplace or trading post. Merchandising has always been a lucrative business for the founders of a successful business enterprise. But eventually old technology merchandising gives way to new technology merchandising. A typical merchandising model lasts for about 50 years.

          • JamesG

            Except that they are trying to fabricate a market out of nothing that does nothing based purely on greed.

          • http://profiles.google.com/barry.kort Barry Kort

            There is a New Testament story about “turning the tables” on the money-changers. The new BitCoin money-changers are poised to overthrow the existing money-changers.

          • fun bobby

            somehow I don’t think the current money lenders will go out with out a fight

          • http://profiles.google.com/barry.kort Barry Kort

            Eventually, they might simply adopt next-generation technologies and co-opt the techno-upstarts who invented and pioneered mathematically defined crypto-currencies.

          • fun bobby

            see my post about using NSA computers to generate bitcoins instead of spying on everyone

          • http://profiles.google.com/barry.kort Barry Kort

            I’d rather they used all that computing power to solve some real problems (like bio-computations to support the development of mathematical models of biological processes).

          • JamesG

            I’m sure they will find some way of co-opting it to gain an advantage. crypto-currency isn’t that radical of a concept. It is just different players and different means of control.

          • JamesG

            Meet the new boss, same as the old boss.

    • hennorama

      JamesG — exactly the same as high-speed, high frequency trading on the NYSE and other electronic markets, where the length of cable between your hardware and the exchange’s data center determines the speed of trading.

      Those with sufficient capital can pay to be in the same building as the exchange’s data center, and the length of the cables is equalized, to remove any further proximity advantage.

      • JamesG

        Yep. outlaw high frequency trading at the same time you outlaw bitcoin. ;)

    • Maximian

      There really isn’t any other way to bootstrap a currency (at least that we know of). Mining (aka transaction processing) is a competitive process, and the winners are rewarded for their efforts. Without that incentive, the system would have never taken off. The fact that we’re talking about Bitcoin today demonstrates the success of this model.

  • Jim

    If people need to protect their assets against inflation, there are better alternatives. In fact inflation is not a serious problem people should be worry about. Our problem today is deflation.

    • Don_B1

      Actually it is the current low rate of return on investments as indicated by the interest provided by government bonds of around 0.5%. This condition is called secular stagnation and is coherently explained by Larry Summers in a presentation at the recent IMF “symposium.” See

      http://krugman.blogs.nytimes.com/2013/11/19/monetary-and-fiscal-implications-of-secular-stagnation/

      which provides some setup for the explanation through the first of two links you need to follow, the second one to Professor Summers’ explication of why this is a problem.

      But low inflation and interest rates exposes any economy to deflation possibilities.

  • creaker

    Last decade it was the shadow market of derivatives – this is just the next step. Corporations moving themselves outside of government control for maximum profits – but still tied in for those occasional bailouts.

  • http://profiles.google.com/barry.kort Barry Kort

    The real problem with BitCoin (as compared to some alternative crypto-currencies) is that the computational cost of validating a transaction is independent of the amount of BTC funds being transferred. Once the lottery model ends and is replaced by the more traditional transaction fee model, it won’t be cost effective to use BTC for small retail transactions. But it might find use in international wholesale transactions.

    • JamesG

      Doubtful because too many derive profit from the “Carry trade”.

      • http://profiles.google.com/barry.kort Barry Kort

        There is always money to be made at the interface between wholesale and retail. But if arbitrage becomes too lucrative a line of business, the architecture of the exchange markets will evolve to squeeze out the middleman. BitCoin is interesting because it exemplifies one of these evolutionary adjustments. I expect other mathematically-defined crypto-currencies will emerge to lubricate the PayPal variety of high-volume, small dollar, retail transactions, where the cryptographic requirements are not so severe and costly.

        • Labropotes

          Berry, still loving the Levithan thing, BTW.

          You clearly understand the problems with barter leading to a common medium of exchange. I suppose the ultimate currency would be one the viewed itself as the current price of basket of goods that represent the entire universe of traded goods, each with their own index price — whatever it took to clear the market in that good on that day.

          • http://profiles.google.com/barry.kort Barry Kort

            In an ideal economy, a person would earn a unit of credit for contributing a unit of work to the commonweal. That unit of credit would then entitle them to extract a unit of goods or services from the commonwealth. The challenge is coming up with a reliable and secure way of keeping the ledger.

  • LinRP

    I must say I learned virtually nothing about bit coin from this broadcast, LOL!

    • JamesG

      they were discussing the merits and perils of bitcoin. It was not a primer on it. That is what google and wiki are for.

  • Omaha Guy

    omg…

    your guests correctly identified a huge problem.

    since bitcoin is a money that goes AROUND a system of that is set up against “taxation without representation”…

    could the same people who commit the worst of crimes, including child pornography and drugs…. should they be allowed to donate to political campaigns as they also donate tax free to their own preferred political stooges?

  • fun bobby

    why would anyone think they NSA has not or will not hack it?

    • http://profiles.google.com/barry.kort Barry Kort

      The NSA, FBI, CIA, and FRB can join the BitCoin network just like you or I can. They can earn BTC by devoting their computing resources to the BitCoin network. And like any user, they can inspect and analyze the blockchains of every BitCoin in existence.

      • fun bobby

        I don’t know too much about it but isn’t there some perceived element of anonymity in its use? I thought that was why criminals liked it

        • http://profiles.google.com/barry.kort Barry Kort

          BitCoin is semi-anonymous, but not entirely so. For one thing, your IP address is not hidden unless you are using TOR.

          Consider that the FBI was able to trace the operator of Silk Road (partly because of his carelessness).

  • fun bobby

    it has taken a while to build up the reputation

  • twenty_niner

    I’ve actually done some bitcoin mining using the video card. I own like a tenth of a bitcoin.

    I see two problems: One, bitcoin mining just burns clock cycles; no real useful computing is done. It would be more interesting if all of those clock cycles were used to solve a real problem. Further, real mining, the kind with excavators, extracts resources with intrinsic value. The bitcoins are purely virtual, and the value is derived from speculation.

    Two, there’s no good exchange for these. Right now, it’s the Wild West; even worse, the Wild East – a lot of the exchanges are in Eastern-Bloc countries. Until a real bank steps up to exchange these with other currencies, it’s going to be niche idea.

    One nice advantage is you can’t print these things.

    • fun bobby

      plus how can you exchange bitcoins when the grid fails?

  • fun bobby

    lets kill two birds with one stone to use all the NSA computers to generate bitcoins and we can use it to pay off the debt. swords to plowshares

  • http://profiles.google.com/barry.kort Barry Kort

    It’s not a Ponzi scheme, but it is subject to speculative bubbles (like TulipMania).

  • http://hammernews.com/ hammermann

    Tom cut off that guy from RI who actually had practical experience with BC and probably some colorful stories because maybe he wasn’t varnished enough or was going to talk about neo-criminal uses. Instead we listen to an “expert” who had no idea how they were subdivided, and I understand it little more than I did before. Actually understand more from the comments (esp Barry) than the show. Bawk bawk, Tom. In a talk show you have to let the right people talk.

  • Steve Heim

    “Rick from Rhode Island, Rick what do you know?””Rick, we hear you loud and clear. We appreciate your call” “Okay, let me turn to you Senator, How about it?” -Tom Ashbrook (Cutting off people yet to make their point)

  • JGC

    Just to let folks know, Diane Rehm also had a program on bitcoins yesterday — guests included someone from the U.S. Treasury, an executive director from the Bitcoin Foundation, and a senior economist from the Federal Reserve of Chicago.

  • JamesG

    Yes a trusted community of holder of BTC who have a vested interest in it accumulating value and demand….

  • JamesG

    Bitcoin was one of the first crypto-currencies to gain popularity and its algorithm of distribution was immediately realized as a means of gaining an immense profit to early adopters because of the mechanism built into it to drive up the scarcity of the
    currency in parallel with demand and inflate it’s value artificially so
    that early accumulators could realize a profit. I.e. a ponzi scheme.

  • Luis Watts

    Listening to this discussion on Bitcoin with Prof. Athley what struck me was the lack of discussion of the basic economics involved. A bitcoin is both a currency and a commodity. It is subject to the laws of supply and demand. At the moment the demand is outpacing the supply and thus the price is increasing rapidly. When this occurs to a currency we get deflation and all the classic discussions of the economics of deflation. Bitcoin is essentially equivalent to a commodity backed currency but without the commodity to back it. The quantity of bitcoins in circulation is controlled by a log function formula that rapidly increases the monetary supply in the early years and tapers in later years with a cap at 21 million bitcoins. A pathetically small quantity. Additional increases in the supply are to be created by peer to peer loans governed by the laws of the velocity of money and the natural monetary multiplier. Differences between a national currency and bitcoin are a few; no central bank, no reserve requirements, no lender of last resort. Questions that arrise are ; what are the risks? Is a central bank needed when you have direct peer to peer lending? Does this negate the “too big to fail” risks of a bank and federal reserve system? What happens in a system of constant deflation? The gold standard broke down for a very good reason it overly limited the supply of money and had no tools to deal with rapid changes in demand. Why are bitcoins different? Are they?

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