China moves against Bitcoin

China’s biggest Bitcoin exchange was forced to stop accepting renminbi deposits on Wednesday, sending the price of the virtual currency tumbling in one of its biggest markets globally.

You will find more here, and FT coverage here.  Since Tuesday, the price of Bitcoin in China has fallen more than thirty percent.  Here is my earlier post on China and Bitcoin., where I wrote “If Beijing shuts down BTC China, the main broker, which by the way accounts for about 1/3 of all Bitcoin transactions in the world, the value of Bitcoin very likely will fall.”  And here is Hal Varian on Bitcoin.


Then there is this analysis -

'Facebook backer-turned-antagonist Cameron Winklevoss has issued a bright forecast for the future of the Bitcoin cryptocurrency.

Speaking in a Reddit Ask Me Anything session, Winklevoss said that he projects the value of Bitcoins could reach upwards of $40,000 at some point in the not-too-distant future.

"Small bull case scenario for Bitcoin is a $400bn market cap, so $40,000 a coin, but I believe it could be much larger," Winklevoss wrote.

"When this will happen, if it happens, I don't know, but if it happens, it will probably happen much faster than anyone imagines."

One half of the Winklevoss twin brothers-turned-investors-turned-Olympians-turned-investors-again duo, Cameron has emerged as both a major financial backer of Bitcoin and an evangelist for the digital currency.

Earlier this year, Winklevoss claimed to own roughly one per cent of the world's Bitcoins with his brother. The portfolio was estimated at $11m at the time and would be far higher as the price of Bitcoins has soared in recent weeks.'

And who wouldn't trust the sort of person that help finance Facebook into so many lives? He sounds like another person interested a better world, without more than just a restrained dollop of self-interest.

Given the enormous volatility, the question is how far it will fall and relative to what; a 50% decline from peak half a month ago is still up 100% from a month ago.

Wrong question. The real question is, does bitcoin have a practical use beyond trading in contraband and evading financial regulations? Since it appears that national governments are not going to tolerate people using bitcoin to flout their laws (I'm not sure why this was ever in doubt), if another use can't be found then buying bitcoins becomes purely a greater-fool play, and those generally don't turn out well, particularly for people who are late to the party.

Ding ding ding.

With the Patriot Act and the NSA doing their things, there's not a snowball's chance in hell that Bitcoin ever serves as anything more than an illicit bartering medium and/or a wildly speculative gambling mechanism.

> I’m not sure why this was ever in doubt

It was in doubt because instead of shutting it down as many predicted, US Congress held hearings about it and Bernanke claimed that cryptocurrencies might have valuable features compared to existing financial structures. Sure any rational analysis would still put extremely long odds against it being genuinely allowed to enhance law-flouting of existing powers, but those pre-China-crackdown developments in the US were enough for a little bit of doubt, at least for those who wanted, and perhaps still want, to believe.

Bernanke doesn't run the FBI or the DEA, so his say-so doesn't mean much on that score, and it's a big leap from "might have valuable features" to "will be permitted to ignore tax and anti-money laundering laws."

Maybe they thought about all that, and thought it was worth it if it helped subvert China's control of their currency and currency flows? That's probably too much the plot of a Hollywood conspiracy movie, but it's an interesting question.

@rpl: " The real question is, does bitcoin have a practical use beyond trading in contraband and evading financial regulations? " -

dude, two countries have made a living doing just that in the non-virtual world: Columbia (drugs) and Switzerland (evading financial regulations).

I predict a bright future for bitcoin, though I haven't bought one yet. Is TC envious of bitcoin, and wishing he could talk it down?

Of course flouting exchange controls *is* a use for BitCoin. Now that the legal method is gone, the black market will increase it's capacity. The open question is by how much? Will it be easier to illegally buy BitCoins than dollars? My guess is yes, but perhaps not by very much.

Today the top post on the bitcoin subreddit is the national suicide hotline.

“If Beijing shuts down BTC China, the main broker, which by the way accounts for about 1/3 of all Bitcoin transactions in the world, the value of Bitcoin very likely will fall.”

Tyler, you are a veritable Nostra Damus.

Except it's still not "a lot" below it's price at the time he wrote that. And if it recovers in a few days, he'll claim to have predicted that too.

Why I want Bitcoin to die in a fire, by Charlie Stross has some criticisms of bitcoin that I've made, and some new to me.

That Stross article is some grade A bullshit, right there. Except for the deflationary part, every one of his claims are either provably false or no different than cash (or even less of a problem as compared to cash). It doesnt take too much reading between the lines to see that his beef is really with libertarianism and he's lashing out at bitcoin as some kind of proxy.

The hacker news link confirms that botnets are being used to mine litecoins/bitcoins now.

Im sure they are to some extent, but that in no way proves that its a systematic problem like Stross claims. Everything ive read says that the kind of desktop PCs that get hijacked and put into botnets are wholly outclassed by the custom built hardware that is out now.

So now you only differ from Stross in degree. FWIW, I think the HN thread in total confirms current *coin problems, and I see little in it showing redeeming social value.

(If libertarians find only redeeming "anti-social value" they shouldn't be surprised when they get push-back on that.)

LOL Wut? I disagree with Stross that botnets are somehow fatal to the concept of crypto currency. Its not a question of degree, its a question of the end result. There is also the small matter of the rest of his article being wrong as well.

You seem highly enamored of that Hacker news thread, but i really dont have the patience to sift through all the comments to find the ones that you think are compelling. If you think something there *confirms* crypto currency problems, maybe you could just cut and paste it here rather than have me guess as to what you think has been proven.

I thin HN is going to have be best informed comment pool on this subject, and with about equal (low) shares of pro and con zealots. Interested parties probably need to read the whole thing. Zealots do not.

So somewhere in that comment thread is something which you think somehow proves some fatal flaw in crypto currency, but you wont either restate it or copy/paste it here? You'll forgive me if i dont take you too seriously.

Several flaws, I think.

But to get to your "point," what is more real, "there are truths in the wider world," or "no, you must prove each thing in THIS thread or it is false."

Well shit, John, you brought it up. You even claim to have made some of the same points yourself, and now you cant even be bothered to go so far as to say "this guy right here has a point" Or "just like this guy here says"? Hell, im not even asking you to make a point, just recycle someone elses.

I dont think its too much to ask if someone starts a thread about criticisms of bitcoin, that that person be expected to actually state and defend those criticisms.

You are being insensible. I pointed to a long thread, shared it even, and shared my conclusion from it. Can you not write your own YMMV?

Or must your conclusion take precedence here, over all other referenced materials?

(It would be different if you'd said you read the thing, but no you said your time was too precious, and so I should recapitulate it for you.)

Because you are the one who is acting like there is some deep truth hidden there. You are the one who brought up the Stross article in the first place. You are the one who claimed to have made some of the same criticisms. Did you not expect that someone might respond? Is *your* time so valuable that you cant be bothered to even restate what you find to be such a compelling argument? If you had no desire to discuss the article that *you* yourself linked to, why not just say so when i replied in the first place?

If you just cant find it in yourself to follow up on the thread you started, then here is my reply:

Thank you John for the link to the article that is full of bullshit. Thank you for the link to the discussion that may or may not contain some information somewhere in there that somehow 'confirms' *coin problems but that you cant restate here for some reason despite having claimed to have made those points yourself elsewhere. You have added so much to the discussion.

Of course stolen desktop pcs are outclassed, but they are almost free to the botnet owner. Imagine I took your credit card, but that no real store would let me use it. However, there's this tiny store that sells $10 gift certificates to Target for $30, but they are perfectly ok with letting me use your credit card. Then, I could be unscrupulous, and steal 30K from your account to get 10K worth of gift cards for myself. The fact that you can buy the same gift certificates for $7 each on ebay is irrelevant to me.

With botnets doing mining, the power company wins, the botnet owner wins, and the owner who pays for the electricity and the hardware loses.

My understanding is (and I dont mine bitcoins so i dont know this for sure) is that they are so outclassed that the return on your investment just isnt worth it. If the most you can get is cents per month, you are better off using the hijacked machine to do click fraud.

mofo, you remind me of those climate guys who say "your link to NASA is BS, prove climate change to me here and now or I won't believe it."

You know what? I don't really care about that kind of lazy ultimatum.

Well John, since we are being honest about what we think about one another, I think it fairly obvious that you actually know almost nothing about bitcoin. I think you linked to that article because you like his anti-libertarian attitude and threw in the line about how you 'made the same criticisms' to sound smart and well informed, but the truth is you are neither. I think once someone tried to engage you in the discussion you chose to start, your ignorance became obvious and you tried to hide behind some shit about “truths in the wider world” whatever the hell that means and acting like im such a bastard for expecting you to actually be able to converse about the topic you chose.

In other words John, you know who you remind me of? The oh so common dim-witted Internet blowhard that unhappily infests nearly every corner of cyberspace.

A miss by a mile. I don't like bitcoin because I find the artificiality of "mining" ridiculous. I have a strong gut feeling that anything so artificial must crash.

I don't dislike gold. Go ahead, buy all the gold you like. I don't care. Gosh, if I was driven by some psychological hatred of the libertarians, I'd have to hate gold too, wouldn't I

(Of course flipping it, your tying belief in bitcoin to belief in libertarian might confirm the vibe Stross goes for. Who really has the politically tied belief here?)

Once again you demonstrate that you actually know nothing about bitcoin. Mining is actually the process of verifying changes to the blockchain. The miner is rewarded for doing this work with random rewards of bitcoin. Its not artificial, its a way for the system itself to pay for the work necessary for the system to run.

Actually, I did know that, and I don't think it mitigates the artificiality.

Maybe you should just change your name, it makes it so easy for me just to think you are a stupid mofo, unable to grasp what you read.

(I mean why didn't you just accept gold? No government controls it. It has a world price. What makes it insuffint? If you *think* crypto-currencies have the advantage that they better evade governments, then (1) you are wrong, and (2) you are walking into Stross' criticism.)

Buy gold, be happy.

I dont know, John, maybe because gold cant be transmitted over the internet? Do you even think about this stuff at all before you type?

I was thinking this morning that there's no effective market allowing one to take a short position on BC. Even reducing a long position is painful due to >1% transaction fees to get it out to other currency (except maybe litecoin).

The first thought is that this should decrease small-time volatility in favor of large readjustments like this. Any other thoughts?

Can't you just borrow BitCoins?

Bitcoin commentary is a classic case of people getting agitated about something that works in practice but not in theory. During gold's long run-up, I got so annoyed by articles on the theme "Gold is stupid and you're stupid if you buy it" that I finally bought some just to spite those people, and I turned a nice profit on it. There are excellent reasons not to buy bitcoins, gold, dollars, euros, T-bills, and even your own home. But I expect people will keep buying these things.

I haven't been following this too closely, but I think the rise of competing *coins might be bitcoin's downfall. The *coin system heavily favors early entrants, and so people now run from bitcoin to be founders in some new currency.

The thing about gold is that there is only one gold. There aren't 53 *golds.

Id say that *bitcoin* favors early entrants. Nothing about crypto currency itself inherently favors early entrants, for example, you could make one that is inherently inflationary.

But that's unlikely since nobody invents a crypto currency unless they can get rich doing it as an early entrant.

Yes, I'm selling down my position in litecoins and moving into ponzcoins. That's where the action is right now!

This is what I've been thinking ever since I heard of litecoin. I felt like an idiot for not having thought of it already.

There are quite a lot of currencies in the world, most (like the Sri Lankan Rupee) slide over the long term with respect to the big ones like the USD. Which in turn slides downwards with respect to gold. My guess is that in 100 years time a handful of crypto-currencies will be in the list of the big-boys, whether Charlie Stoss likes the idea or not.

Maybe one of these local currencies like the Sri Lankan rupee should move to a cryptocurrency implementation, except make it one where all of the rupees have already been created and can't be mined. This would be like moving to a fixed gold standard, because it would prevent the Sri Lankan government from inflating the currency, but without the need to have any gold. This would be a more plausible alternative to Bitcoin (at least psychologically), because it would actually have value as legal tender in Sri Lanka.

What would the Sri Lankans do if their currency surged to USD$1000 per rupee? Reprice their wages and goods as necessary. Anybody holding rupees could sell them to foreigners, if the price seems right. It would be sort of a dual-use currency -- legal tender in Sri Lanka and an international trade currency, sort of like the U.S. dollar but easier to move across borders.

You are right, it is easy to re-use the Bitcoin software to produce and independent currency. I think most countries like S.L. like their current situation, because they like printing money. But it could be that some nation, after a financial crisis decides to do exactly what you propose, in order to credibly commit not to re-inflate their new currency.

...This is essentially an economy with Rai stones, isn't it?

I'd forgotten about that form of money. I wonder how many Rai stones there are and what it would cost to buy them all. Then, I could introduce the Raicoin cryptocurrency backed up by hard money. Very hard, heavy money. Of course, I could just leave the stones in place, as is the custom, as long as I had title. Seems like a good Kickstarter project.

But currencies, when they are tied to nations, can't be invented for fashion (or a dogecoin joke), nor are they easily abandoned by fashion. Bitcoin depends on attention in a way a national currency does not. The Zimbabwe Dollar hangs on despite being hated. That can never happen to a consensus currency. Therefore consensus currency investors should watch for falls in consensus.

I had to look it up, but Wikipedia says the Zimbabwe dollar is gone until further notice. Zimbabweans use other currencies, governed by better, less changeable rules. Crypto-currencies are no more interchangeable than national ones -- they each push a different set of rules, and those rules are hard to change.

You are right that the value of cryptographic "coins" is mostly arbitrary while they are dominated by speculation. But it is blithe to assume they have no other uses. They are the sane way to transfer funds across the Internet -- much better than giving your account key (i.e. credit card number) to random strangers on the Internet.

I picked a 100 year scenario because I think society will figure that out some time in that period. Along with other kinds of transaction that are much easier or safer with these things than with bank records.

Per that link above, bitcoin value has fallen -17.54 % in the last 24 hours.

Bitcoin has the potential use to give cheap banking to the billions of unbanked citizens of the poorer country. It's a msatter of time before there is cheap embeded chip to do this kind of thing on the $20 cell phones. Mpasa is a big success. I expect bitcoin to be mpasa times 20.

It also canbe useful in countries like argentina. It can be used to compete with western union.

So, the word "paypal" hasn't actually been used here. (PayPal ramps up Africa presence with Equity partnership)

Why is that? We actually have a lot of easy and accepted means for internet transfers which do not suffer 20% daily volatility. Any yet .. perhaps those aren't political enough?

It's funny. I'm accused above of being political because I dislike bitcoin, by people who are really saying "don't bother me and my politically linked belief?"

How do you open your paypal account is you are in a country with very weak IDs? Paypal needs to navigate each countries laws and particularities.. With bitcoins you just generate a wallet which can be done on a cellphone anywhere in the world. The governement cannot prevent you from opening an "account". Thus the tech resolve the banking issue by bypassing the governement.

I think the rise of cellphone commerce and funds transfer in Africa predates bitcoin by a bit, which should mean the security of phones was ... sufficient?

I'm all for better chips and things, as you mention above, but I don't think they are 1:1 with a crypto-currency.

Note also that the bigger (in proposed dollar volumes) move in the US is toward "phone as wallet" for US dollars. Wave your phone at starbucks, etc. That does make me nervous, and I'm not sure security is strong enough, but people are building those things out with traditional currencies.

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