Rusty Russell's Coding Blog | Stealing From Smart People

Jun/11

6

Waiting For The Great Bitcoin Crash (GBC)

I like bitcoins.  A simple open source client, a well-run developer community, clever algorithms, decentralized assurance model, and of course near-zero transaction fees.  For all the economic arguments (some of which sound like early anti-Wikipedia arguments, though I hesitate to argue by analogy), when I first used it to tip a website, I fell in love.  It took me about 3 minutes to transfer $50 from my bank account to a stranger’s via my bank’s website, with 2 days latency.  It took me about 5 seconds to send 0.1BTC to a stranger, with about 10 minute latency.  It was a revelation.

But, while bitcoins rock, volatility doesn’t.  It’s currently a bit hard to get some bitcoins, and the price has rocketed by speculation.  It’s not just a cute FOSS project, it’s becoming a real market, and surely those piling in now are susceptible to hacking, scams and the inevitable hiccups that go with any project ramping up.  It’s all going to come crashing down to earth.

Good.  My hope is that after the GBC the speculators will move on.  Volatility will settle.  The boring work of accreting trust in this new tool will continue.  I fervently hope that it we will appreciate its true utility once the dust has settled and the Man Loses A Million Dollars and House in Virtual Currency headlines have faded.

[Yes, you can tip me in bitcoins!  I think it's a good habit, fun to do, and better than ads as I get a warm fuzzy feeling of appreciation.  I'll be using any tips I get to tip other sites which take BTC].

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11 Comments for Waiting For The Great Bitcoin Crash (GBC)

Johannes | June 6, 2011 at 9:49 pm

While Bitcoin does indeed sound very interesting, flattr.com does something similar and already works fine, with real money :)
Unfortunately, it is not used by many websites outside Europe.

Jeff Epler | June 6, 2011 at 10:52 pm

When have speculators ever moved on and stopped screwing up markets? The only reason it would happen with bitcoin is if it fails as a parallel currency / commodity.

Karellen | June 6, 2011 at 11:29 pm

s/Man/Rick Falkvinge/

And, given that he’s borrowing money to “invest”, then if you’re right and he’s wrong, also

s/House/kneecaps/

:-/

It will certainly be interesting to see how it all plays out…

Alex Besogonov | June 7, 2011 at 1:10 am

Well, here in Ukraine it takes several _seconds_ (banks might add a few minutes of latency on their end) to transfer money from one account to another one. And it takes only a minute or so to enter payment details (essentially, three numbers).

So classic payment systems work just fine, no need for bitcoins. Besides, bitcoins have all the disadvantages of gold.

Justin Dugger | June 7, 2011 at 8:21 am

Forgive my ignorance on Bitcoin and Australian (and other international) law, but do you plan to pay taxes on any tips?

Author comment by rusty | June 7, 2011 at 11:17 am

Re: Ukraine. Impressive. For me I have to log into my bank site, using account number, password and electronic token. Then several clicks later, add a new recipient, copying bank, account number and name, then another electronic token use to verify. Then make the payment. Then 1-2 day latency for transfer :( And if it’s going overseas, it’s much worse…

Re: tax. No, but that’s because I expect the amounts to be lost in the noise and the Australian tax office is quite rational. I don’t declare when I sell on ebay, either. If I get more than the cost of a few cups of coffee, I look forward to the discussion with my accountant :)

Mike | June 12, 2011 at 12:54 am

It seems the bubble is bursting at this moment, going from over $30 to under $15 within two days. Here’s to hoping bitcoin will survive the disappointment from disillusioned traders with unrealistic expectancies. The exchange rate has been a rollercoaster the last weeks.

John Nagle, Silicon Valley, CA | June 14, 2011 at 5:29 am

Bitcoin isn’t reliably convertible to other currencies. There’s the illusion that it is. But when you look at the detailed terms of the various “exchanges”, it turns out it’s not.

Selling Bitcoins via Mt. Gox only yields a deposit with Mt. Gox. Then you have to get it out of Mt. Gox, through some other intermediary. Mt. Gox does not have a contractual obligation to deliver funds within a fixed period, and they have been known to stall or make excuses. See (“http://forum.bitcoin.org/index.php?topic=13423.0″, “http://forum.bitcoin.org/index.php?topic=15983.0″)

TradeHill clears through Dwolla, but wants “0-3 days” before they deliver funds to Dwolla. They also clear through MoneyPak/Green Dot, for which they want 24 hours.

The clearing intermediaries, Dwolla (“You agree that Dwolla will not be held liable for any problems occurring from delays in processing time”) and Liberty Reserve, also refuse to provide a contractual guarantee of settlement time. Dwolla, though, at least offers an automated daily sweep into a real bank account.

In the real financial world, institutions have a limit on how long they can take to settle a transaction. Exceeding that limit costs them. The BitCoin exchanges aren’t there yet.

Ohra | June 14, 2011 at 5:32 am

Maybe the users of bitcoin should invent some innovative rules, that hinder the speculation. For example an exit fee: if you sell bitcoin, 5% of the amount will be deducted and equally distibuted to all remaining users. This would also help the system grow.
Also it would be interesting to invent a “circulation impulse” as some regional currencies have http://en.wikipedia.org/wiki/Chiemgauer
In this model each liquid bitcoin amount would be reduced by 2% each quarter (distributed handling possible) the amount being again distributed e.g. to the “miners” (more exact: people keeping up the network with their calculating power).
Thus, bitcoins would be rather spent or lent and less liquid means were available for speculation.
Such measures might be formed via liquid democracy
http://www.communitywiki.org/LiquidDemocracy

Adrian | June 20, 2011 at 11:27 am

Aigars Mahinovs | June 20, 2011 at 9:18 pm

All monetary value is based on trust. In case of real money that is the trust that the country that issued the money will not go fully bankrupt (they can still default on obigations with money surviving that) or do any other equally stupid things. After that base trust is distributed enough among the market participants, trading can begin to determine the real value of the currency – here is where the speculators come in. They are an essential part of any liquid money market, if bitcoins become more serious expect more speculation not less.

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