The Bitcoin Saga


Well, any validation step involves some hashing. But hashing can be easy or hard. In a proof-of-work system, hashing is intentionally hard but everyone is invited to participate. In a proof-of-stake system, hashing is trivial but being invited to participate is hard.

In fact, there is an additional incentive built into proof-of-stake. If you somehow managed to acquire enough coins to corrupt the validation step, you would probably be reluctant to do so because you would risk devaluing a system in which you hold a big investment.


While the rest of the world is asking, “What will the collapse of the ruble mean for Russia?” I instead found myself asking, “What does the collapse of the ruble mean for our old friend the Bitcoin?”

And the answer seems to be - not much. The Bitcoin-to-dollar exchange rate continues its long, slow slump, far below its high this time last year (but still above the rate 14 months ago, when Bitcoin madness started.) The collapse in the ruble doesn’t seem to have helped.

Whatever Russians are doing to try to hedge against the fall of the ruble, they don’t seem to be buying Bitcoins.


in Soviet Russia, Bitcoin buys Ruble!

OK, not great, but I couldn’t think of anything that made sense.


Every day, I see new articles where some new outfit has adopted bitcoin. Or some “celebrity” who speaks out about what it offers.

Yet it goes up and down and down in value. Why? Is it the constant mining where the rate of increase in “mined” bitcoin is higher than the demand? Was it simply overvalued for too long, and the value is normalising? Is there any known data on this?

On reddit, it’s basically a bandwagon. There’s unwavering faith in the potential, and it’s just a matter of time.


For the same reasons it always has and always will, reasons the Reddit folk seem incapable of comprehending: it isn’t currency. Period.


To amplify on what TriggerCut said: what value? There’s no value to normalize.

Like paper currencies, there’s no intrinsic value to a bitcoin. It’s as imaginary as something gets. The reason real paper currencies have value is that they’re backed by national economies. With any national currency, you’re always guaranteed that you can exchange that currency for real goods or services from that country.

Bitcoins aren’t backed by anything except crowd belief, and there’s no guarantee that they can be exchanged for anything. With no backing, the floor value of a bitcoin is zero. Any value above zero is fleeting speculation.

This is obvious to everyone except the people who have made a religion of bitcoins.


Lots of things don’t have any intrinsic value other than crowd belief but nonetheless trade for non-zero amounts for sizable periods of time - issues of Detective Comic 27, Honus Wagner Baseball cards, Shakespeare’s autograph, Gutenberg Bibles, Rembrandts, etc. etc. So Bitcoins aren’t actually all that exceptional in that regard.

The slow fall of the Bitcoin/USD exchange rate is pretty interesting. Had it been just a fad, I would have expected last year’s bubble to be followed by a sharp immediate fall back to where it was 3 or 4 years ago. Instead there’s been a gradual decay, and it’s still above where it was when last year’s boom started.

Looking at it from the other side, lots of factors would seem to favor an appreciation of the Bitcoin: it’s designed to appreciate (because it supposed to become harder and harder to mine, and the total number of Bitcoins is capped); the number of True Believers doesn’t seem to have changed; the sudden fall of the ruble; and the continued growth of the Internet’s dark markets, which are assumed to be the true source of Bitcoin’s value. (It’s the de facto currency of shady transactions all over the Net.)

But no collapse, and no appreciation either. Just this gradual decline. Maybe the number Bitcoins mined in the last year is much above expectations (which I am too ignorant/lazy to check but someone who knew their Bitcoins could easily check.) Or, my pet theory, someone took up a huge position in Bitcoins during the boom last year. Then when the bloom was off the rose and it looked like Bitcoin was headed back down they decided to back out - but verrrrrry slowly so as not to cause a panic.


You’d be pretty silly to treat any of those things as currencies either. The analogy’s a bit strained, since bitcoins don’t have any of the historical or emotional significance of any of those things. They’re generic digital commodities. The continued value of the items you mention is largely about crowd attachment to them, for historical or other reasons. No one is attached to a bitcoin.


Surely Bitcoin’s problem is volatility. Looking over the historical price record of the last few weeks, the price of a Bitcoin varies by as much as 10% in a single 24-hour period. It’s gonna take a sustained period of stability for anyone to take it seriously as a real currency.


But hey, Microsoft take it.


That volatility is a direct result of it Bitcoin’s value being entirely imaginary.

Even so, Bitcoin has a lot more troubles than volatility. Even if you pretend it’s ever going to be a “real currency,” which it won’t, it’s broken by design. By design there’s no recourse in transactions. Paying someone via bitcoin has the same issues as sending cash in the mail, which no one does because there’s no protection against fraud. Online transactions are exclusively via credit card or services like Paypal for a reason.

The only people who actively want the anonymous, irreversible features of bitcoin are criminals. Which is why it’s only made meaningful inroads with drug dealers. They want electronic transactions with the limitations of cash for the same reasons they use large amounts of cash in the real world.


Bitcoins are Pogs… used in the drug and sex slave trade. There is the market your fiat-free currency.


TRIGGER WARNING: liberal schadenfreude ahead!

Bitcoin revealed: a Ponzi scheme for redistributing wealth from one libertarian to another

If Bitcoin were a currency, it’d be the worst-performing one in the world, worse even than the Russian ruble.

But Bitcoin isn’t a currency. It’s a Ponzi scheme for redistributing wealth from one libertarian to another. At least that’s all it is right now. One day it could be more. Venture capitalists, for their part, are quick to point out that it’s really a protocol, like the early internet, and its underlying technology could still be revolutionary. What are they supposed to say, though, when they’ve bet hundreds of millions of dollars on it?

But that’s not much of a consolation to anyone who bought anywhere near Bitcoin’s $1,100 top. Or near $1,000, or $900, or $800, or, well even yesterday’s prices. That’s because Bitcoin hasn’t just fallen 76 percent the past year. It’s fallen 36 percent the past two days, as you can see below, with a 24 percent decline the past 24 hours. It’s too bad Bitcoin doesn’t have a central bank to help stabilize its value.


Oh, bitcoin was pegged to oil all along? Who would have guessed.

In bitcoin news

Allegedly Silk Road’s original Dread Pirate Roberts was Mark Karpele of MtGox. Someone analysed this interview and found matches in vernacular and style of writing. (tenuous i know)

Cointerra got sued by their co-location provider for not paying their $12k/day electricity bill, they were mining 3-4k worth of bitcoins for that price.

Bitstamp got hacked and had 5 million (now worth about 2 million) of bitcoin stolen, It turns out bitpay and a few others almost exclusively used bitstamp to cash out as their price was static when bitstamp went down.

The Winklevoss twins are trying to back out, and had to release a document explaining why bitcoin had some many problems.

and finally, a Bitcoin murder.


I laughed.

I’m also not sure I buy the DPR theory - it’s the defence strategy of Ross Ulbricht, who’s in court charged with being DPR.

edit: wrong link


Roger Ver, AKA “Bitcoin Jesus,” renounced his US citizenship in Feb 2014 and moved to St. Kitts. He started a business in St. Kitts that helps rich folks from the US navigate the laws in the West Indies so they can set up tax-dodge accounts. Unsurprisingly, the US denied his application for a business visa when he applied for one to attend a conference in January.

Bitcoin Jesus then took to Twitter to complain about the US State Department keeping him from his “native home”

I checked with lawyers very carefully before I renounced, and they clearly assured me that I will qualify for a visa to visit the USA. I would be fine with them denying my visa if it was for a valid reason, but they are either lying, ignorant, or stupid when they claim that I plan to secretly overstay my visa and live as an illegal immigrant in the USA.

What an idiot.


Turns out, the state department can deny your visa for whatever fucking reason they fell like. Maybe you should think harder about the repercussions of specifically trying to fuck your country out of tax revenue.


Considering my exceptionally low opinion of people who fraudulently use tax avoidance schemes like that, someone who creates a company to facilitate that is scum. Personally I wish they had approved him, so they could arrest him the second he landed for whatever byzantine tax law he is breaking. I’m sure there is something they could pin him with.

Let him rot in jail for a while, then kick him out of the country. For good.


I was told he was told to pay 350,000 in back taxes, he paid it and they refused him entry anyway.


While he’s an idiot, it’s also true that your border security are often quite arbitrary.

Professionally, being rejected from the US for a conference is seen far, far more kindly than, say, being rejected from a EU country.