I think Bitcoin's greatest strengths (anonymity and decentralization) are also it's greatest weaknesses.
Anonymity helps certain people but hurts others. For example, you don't want to be the victim of identity theft or other fraud within a totally anonymous and decentralized financial system, because then there is little hope for restitution. There are many stories of Windows malware and viruses stealing the wallet.dat file from a PC which literally wipes out all of that person's BTC wealth.
I hear some Bitminers saying "it's just like cash" - yes, but most people do not hold their entire life savings in physical cash. They trust banks and credit card companies whose systems allow everyone to transact with a high level of confidence. If we went back to the days where people physically held and/or had ultimate responsibility for their entire net worth, I think the world economy would look very different than it does today.
I think the best comparison for Bitcoins is to people who hold physical gold in their homes. However, even between these two stores of value there is a pretty fundamental difference. In order to keep a BTC wallet secure - REALLY secure (e.g. what the BTC community calls "cold storage") - you have to be technically adept and constantly security conscious. I would say that even with some training, less than 10-15% of the population has the intelligence and skills necessary to safety receive, store, and spend Bitcoins.
Unencrypted wallet.dat file? Oops, a trojan just stole all your Bitcoins. Keylogger? Oops, all gone. Downloaded a compromised BTC Windows client? Sorry, better luck next time!
Whereas it's pretty simple for someone to understand how to stash away a few gold coins or bars.
I think this will be what ultimately keeps BTC in the realm of a hobbyist currency, full of speculation and very useful for certain online transactions but not comparable to a real fiat currency.
That is the current state of affairs, but I don't see how any of those issues is fundamental, or should be extrapolated to 'ultimately'. Sure, BTC has a different risk profile from a bank account, or gold bars under your mattress, but if it keeps up the current pace, there will be dead-easy methods for cold storage and safe, hardware based wallets commonly available soon. People are working on those already (see for example http://bitcointrezor.com/)...
It's rather easy to make a reliable and cheap device assisting in bitcoin cold storage. After which, it would be like real easy, much more so than with gold.
I don't think I've seen anyone claim that gold is easier to hide or bury than bitcoin. Maybe some people do but that's not the issue most people are talking about when they compare bitcoin to gold. The main distinction that they're pointing out is that gold has historically held value beyond its use as money (electronics, jewelry, etc.)
Yeaaaa well when bitcoin crypto gets broken, gold will still hold the same value. gold has actual physical value, not because its shiny but because its useful.
You do not need to melt down gold and take it to an expert to determine authenticity. There are many ways you can determine if a metal is real gold on your own (density, hardness, magnetism, nitric acid test).
There are companies which are specialized in producing devices which let you determine the composition of material without destroying the actual material. A popular method is to send X-Rays in the direction of the material and then measure the angle of the reflected X-Rays. Every material has a different angle of reflection. If you want to know how those devices look like go to:
I have always wondered about this: are you able, with simple methods and no melting, to guarantee that a gold bar is a gold bar, with a 99,99% certainty?
By producing a gold-coated bar:
- density could be faked by putting something else in the inside of the bar
- nitric acid test would not work, since the surface is gold
- hardness would not work, if the surface layer is thick enough.
Gold is soft, so you can probably push a needle inside to check for a tungsten core (most common way to fake gold bars)
Not as fancy as X-ray techniques, but much cheaper and readily available
Maybe you can analyse the propagation of mechanical waves within, not sure (so a pure gold bar will 'sound' differently when struck with a soft mallet)
Might be worth noting that the things denser than gold are probably all going to be more expensive as well, so there isn't really any way to hollow out your gold and fill it with weights to correct the density. Even DU falls short of being dense enough todo that.
Detectable if you measure density carefully enough (though do people? I don't know). If you did that with plutonium instead (way more expensive than gold obviously, so it would be a silly thing to do) then you could get it as close as you wanted.
As an interesting sidebar, there's a series of photos of some of the scientists on Tinian posing with a small box containing the core of the Fat Man bomb - a 3.5" diameter sphere of Plutonium that was apparently worth at the time the equivalent of about $5 billion dollars.
It's certainly detectable with precise instruments, but it's not practical to test each and every bit of gold one acquires so thoroughly. Hence the opportunity for counterfeit gold that passes casual inspection and weighs about the right amount.
Sorry yes, depleted uranium. Tugnsten also comes close, but not close enough to get it perfect. If you can accurately measure density you could still detect that.
The question I suppose is does anybody measure density carefully enough to detect tungsten, and if not, should they be?
Modern technology uses X-ray fluorescence. You can literally just point a handheld device at a block and find out what it's made out of (including Gold). You can do the same with jewelry and determine if it's made out of solid gold, gold plate, etc.
Edit: Also, the Curiosity rover has an X-ray fluorescence instrument as part of its "CheMin" spectrometer which it uses for analyzing the composition of Martian minerals.
Namely: they dislike bitcoin because they don't understand it.
The assumption that people who prefer gold over bitcoin, just don't understand bitcoin, is arrogant to put it mildly. I understand bitcoin, I like bitcoin, I prefer gold because it is radically safer as a store of value.
One thing not mentioned in his list, is that bitcoin can be replaced (or legally usurped) by another protocol or approach in the relatively near future, one that is perhaps vastly superior. Bitcoin can also easily be made illegal by the US Government, and that is a real threat. Your typical gold is not tracked, the government has no idea who owns it, and many states have passed laws shielding owners against Federal confiscation. It's easy for the NSA to track all bitcoin related IP traffic however, and then to continuously press on it forever to check for bitcoin based transactions (all run by machines, not people that have to search every house and yard in the nation for gold).
This is particularly an issue given the speed at which technology is advancing: the things you don't know about tech just 10 or 15 years in the future, is the problem.
It's guaranteed bitcoin will run up against lots of direct competing digital monetary systems in the future (they're in the works now, thanks to the splashy bitcoin headlines). Bitcoin is merely the first to gain a small amount of traction; it's very early yet. There's no insurance that bitcoin will retain its position for even the next few years, much less further out. A few things will happen in just the next 24 to 36 months, first there will be numerous new competitors to bitcoin, and second laws / regulations will begin to proliferate to control digital monetary systems (and those will dictate winners and losers).
The odds we're going to replace gold in the next 20 or 30 years with another physical store of value? We can hardly fly to the moon at this point (in fact, nobody is flying to the moon right now, and we've never even attempted space based mining yet) - well there's no logical place that would derive from any time soon.
The US was able to lean hard against the Swiss and directly force them to change their banking laws. Bitcoin would be trivial to destroy by comparison, simply by leveraging the UN / IMF / global banking system.
The reality today is that bitcoin is tiny and still irrelevant, IE it can be made to disappear tomorrow morning at a mere list price of $1 or $2 billion, a paltry sum in the finance game.
Maybe that won't be the case 'tomorrow' - and maybe bitcoin will get far easier to use for the lay person, leading to wider adoption. Bitcoin is a speculation that may turn out great, gold is proven.
The US wouldn't have to lean on anyone. If the Government wanted to destroy BTC it should be trivial for the NSA to take over 51%+ of the network which then allows it to pollute the system with malicious data that would eventually kill it. (It's not even clear that this would be against any law.) I would bet all my Bitcoins that the architecture for this has already been mapped out, and perhaps even implemented.
> If the Government wanted to destroy BTC it should be trivial for the NSA to take over 51%+ of the network which then allows it to pollute the system with malicious data that would eventually kill it.
That's not how bitcoin works.
If you control 51% of the mining network (not a trivial feat, as you seem to think it is), the best you can do is either:
a) reverse your own otherwise valid tranactions (presumably the government doesn't care about defrauding its citizens -- it can do that without resorting to bitcoin hacks), or
b) slightly slow the effective transaction acceptance rate by only accepting your own (garbage but legitimate-looking) transactions. This would have to be done in some inconspicuous way such that the client authors can't reliably filter out your transaction spam with a clustering algorithm, or else a client update that rejects your spammy block chains would completely nullify the attack.
I don't see how either would "kill" bitcoin, or even have much of an impact.
Someone somewhere linked to a bitcoin information page showing how much computing power is in the blockchain, and it's an amazing amount. More than all the top500 combined. (But remembering that we're comparing non-similar computing units.)
It's an international currency, so it's interesting how all the "government will kill Bitcoin" hysteria is coming from the US. Is that a specific US thing, that people have a special distrust and fear of your government destroying everything?
The global banking system is (currently) controlled by the US Government. There's no such thing as an international currency outside their reach.
It's how the US is able to attack Iran's currency from the outside so easily and spike their inflation to the moon.
It's how when the crash occurred, the Fed was able to stabilize the global banking system by shooting hundreds of billions around the planet to international banks (from Berlin to Tokyo).
It's how the US was able to pressure the world's second largest - and fastest growing - economy (China) into floating its currency more freely and 'allowing' its value to climb.
It's how the US was able to dictate terms to the Swiss (of all people, given their history).
The fact that it's international will just make the Feds more frantic about either controlling it / replacing it / destroying it. The solvency of the US Government depends on the FRN standard, and the ability to 'print' at least $15 trillion dollars over the next 15 years. You don't think they'll attempt to kill anything that even remotely threatens that?
And to be clear, what's likely isn't that digital monetary systems will disappear, rather, that bitcoin will be usurped by official standards. The US will merely get the G30 to agree to some common frameworks and regulations, that will stuff the dollar / euro / yen / yuan into a new shiny digital box. The G30 will jump on board with glee, as they all want to control their own currency systems as much as the US does.
Excellent point. I was going by a scenario in which the Feds operated by a more normal channel, using traditional banking leverage points.
They could clearly hit it both ways as well. Come up with their own standard, regulate bitcoin practically out of existence, and simultaneously attack in a malicious manner.
One thing is certain, the US Government didn't really care whether AltaVista, Lycos, Excite, Google, Yahoo or MSN came out on top in the search wars (competing technology), but they are going to intensely care about who wins the digital monetary system competition that has just begun. We have more money, banking and finance laws on the books than any other sort, because of their desire to control money (which controls everything else).
"it should be trivial for the NSA to take over 51%+ of the network"
Should it? Where would they take that kind of computing power from? 700 petaflops? The top supercomputer in the world does 20 petaflops, for comparsion.
Not sure why you think it would be that hard with customized hardware, but let me ask the question a different way instead.
In a post-CPU, post-GPU, ASIC dominated world, what rational bitminers (other than botnets) would compete against the NSA, or any malicious attacker, who was willing to mine unprofitably? Say even below the cost of electricity, with hardware and bandwidth costs of zero.
If NSA use custom ASICs to mount a 51% attack they are injecting bad data into the blockchain, which is destroying the value of bitcoin.
But even if they don't do this, and they become part of the economy - it's easy for them to create havoc by flooding the market and devaluing bitcoin, then buying all the cheap bitcoin, then flooding the market again. Do that a few times and they'll have removed anyone but gamblers from the bitcoin economy.
Individuals from China (a big new buyers market) to India (jewelry) to the US that buy gold, do in fact hold it physically.
Some large scale investors of the Paulson type do hold huge sums in GLD, but they're not your typical gold owner, and they're dwarfed by the smaller physical gold market transacted between individuals.
Americans own more gold than the US Government / Fed does, and they're not holding it in GLD ($64 billion value).
Your typical gold owner has less than $100,000 worth of gold, and holds it physically.
The value of gold is its immense store of value attribute. It is extremely difficult to form from any other substance, at least in any meaningful amounts, and it is extremely inert, while still being readily available compared to alternatives.
Secondly, there is implicit monetary value to gold because most of it is hoarded and stored by central banks, the institutions who issue your legal tender and in whom society places its financial trust, i.e. money. Bitcoin has no such association.
Thirdly, gold can and does generate liquidity from creditors as collateral - just ask any bank and exchange during the 2008 financial crisis. Bitcoin has no such function.
Finally, the value of Bitcoin can disappear just as fast as it appeared. It can be useful as a medium of exchange or an investment, but as a store of value it does not compare to gold.
"The harder it is to duplicate and easier to verify, the more liquid it is."
What? A 5-year bond is hard to duplicate and very easy to verify, but it's not liquid at all. I'm not sure that this guy knows much about how currencies and assets work...
One of the issues I've found with Bitcoin is that it is bloody difficult to get hold of. I was looking a few weeks ago when it was €40, but I couldn't find an easy way to buy it.
The solution I found (which I didn't bother with in the end) involved:
- Creating an account at an exchange
- Creating an account at one of their payment providers
- Sending in personal information to get my account verified
- Making a bank transfer for the payment provider
- Waiting for them to confirm it and tell the exchange
If I want to buy gold I'm pretty sure I can find somewhere online and buy it within 5 minutes - it's a lot easier. Please, someone make an easy way for people to get BTC and I'm sure that'll increase adoption...
I look at both Bitcoin and Gold as investments (and in many ways, all currency, alternate or otherwise, are investments/speculation), and in that light bitcoin doesn't have the price stability or the liquidity needed for me to seriously consider it.
By liquidity I don't mean "how easy is it to sell", but rather "how easy is it to sell relatively large amounts of this thing without me moving the market itself and thus making it very hard to exit positions efficiently".
In 100 years, gold will exist? Bitcoin, maybe, but if not, probably something different and possibly "better," whoever that's defined (security, efficiency, capacity, speed, etc.).
One thing that people like in a commodity is stability, the value of a Bitcoin may be rising but the old rule says: what goes up must come down.
Gold has been valuable for more than 4000 years.
For me a better comparison would be made against diamonds, they are less useful and more artificially priced for consumers. Generally people pay something which tracks/reflects the true value of gold and they can sell gold items for scrap value. Diamonds are sold as an investment but it is a false economy, if anyone ever tries to sell a diamond they quickly find out how artificial retail prices are. Worth reading this article from the 80s to find out more:
http://www.theatlantic.com/magazine/archive/1982/02/have-you...
In 100 years the Gold market will be flooded with asteroid mined precious metals. Besides which, the economy will be so different that who knows what the value of anything relative to anything else will be.
Why would anybody mine gold on asteroids if you would use Bitcoins instead? For technological purposes existing amount of gold is more than enough and it will mostly shift in that area.
If (when) Bitcoin proves to be the world money, who would need to pay for gold storage/verification/transport? In such case gold price will go down and it will be much more used in production processes than today.
I don't know what point you're trying to make here. People will mine Gold on asteroids as a byproduct of mining for everything else. And they will mine Gold because it has value (as jewelry, in industry, etc.) And over time so much Gold will be mined in such a way as to vastly change the value of Gold and transform it as a medium of stored value.
I meant that we already have a lot of gold sitting in the vaults because it's more valuable this way. As a ledger, that is. Only a tiny portion is used for technology and jewelry. In case Bitcoin makes gold too expensive to use as money before mining asteroids gets profitable, you would have plenty of gold for tech purposes already mined and available. If Bitcoin will be as good as some people think, no one will mine gold at all because there is enough of it in the vaults for many decades of use in production.
If you want to get really tinfoil hat about things, arable land and guns would be better than either gold or bitcoins (quick, to the Compound in Montana!). And if you don't want to get tinfoil hat about things, there are far, far better investments than either one - including, once again, land.
The most valuable thing you could get in those places is probably a ticket out. And dollars are probably easier to use to bribe/pay your way out - everyone recognizes a 100 dollar bill, but $100 of gold is pretty small.
Bitcoins are fungible. In fact, there's no such thing as "a" bitcoin, they're just amounts recorded on the blockchain ledger, so they're actually perfectly fungible, even more than gold.
No, first of all, money is trust that someone will honour it. Information is on the second place.