[SolarCross]

As I said, I was going by what appeared to be the explicit reasons on that wiki article.

I think you misread that article.

In a centralized economy, currency is issued by a central bank at a rate that is supposed to match the growth of the amount of goods that are exchanged so that these goods can be traded with stable prices.

This quote is contrasting a decentralised bitcoin currency with a centralised fiat currency.

[Rothbardian]

[Someone5]

Yeah, that doesn't look so interesting when you plot them out over the same time period.

[Someone5]

I am talking about which commodities emerged spontaneously as currencies, not which arrangements were dictated by governments (at the pressure of whichever group) and imposed by force on the public.

You are talking about the so-called gold standard, are you not? That is an example of an arrangement that was dictated by governments and imposed by force upon the public. The public rarely actually wanted to back their currency with gold, instead preferring inflationary arrangements (which is why there was essentially an annual fight between gold bugs and labor groups who wanted silver). At the time silver was a highly inflationary alternative to gold, before people had really wrapped their heads around the notion of a fiat currency.

There was never some big demand among the public for gold that mean old governments decided out of the blue to quash. The gold standard only got broken after people had been clamoring for decades to break it.

"If they dare to come out in the open field and defend the gold standard as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold." --William Jennings Bryan, 1896

Seriously, you need to read up on the political history of how the gold standard was arrived at, why it was retained for as long as it lasted, and why alternative systems (like bimetallism) arose.

Then you wouldn't object to freezing the base money supply?

Sure I would, but not for that reason.

The reason is obvious - governments wanted to stop using gold because that allowed them to counterfeit money without limit.

Which is basically absolute bullshit. Governments only went away from gold once everyone kind of came to an agreement that the time for a gold standard was over. Labor groups in the US had wanted an end to the gold standard for--literally--right around a century beforehand. Business finally came around to their point of view once the gold standard started to choke the economy... as it has repeatedly done before.

The only reason the gold standard ended was because no one wanted it. The old defenders of the gold standard--the wealthy capitalists--stopped wanting it because it was getting in their way. Labor wanted rid of it because inflation is good for labor and gold was keeping inflation too low.

Your mythological version where the government came through and--for no sensible reason you can describe--just decided on its own against the wishes of the people to impose some fiat system... is manifestly untrue. It's a highly distorted version of history that, literally, only Austrian economists propose.

[ralfy]

Unfortunately, even with bitcoin current global crises will still take place. That's because such crises deal with what is more than just a problem with the use of money.

[Someone5]

A 'socialist' defending a corporate currency backed by a violent monopoly. This is the entertainment that keeps me coming back for more.

Rather than an even more restrictive government currency backed by violent monopoly? You bet. It's a question of priorities. You act like gold-backed currency is some bastion of freedom unrelated to government or corporate control, which people only avoid because of the government. It's nonsense, and it ignores the rather lengthy public fight to get rid of the gold standard.

Any currency is bad, but if we're going to have one, then it should at least be a currency that has a reasonable rate of inflation.

[Eran]

You are talking about the so-called gold standard, are you not?

I am talking about whatever standard emerges through the unforced operation of the market. In the past, that was often (though not universally) gold.

But I would be just as happy with, for example, bitcoins.

For that matter, even Federal Reserve dollars, provided only that all legal restrictions on alternative currencies are removed, and tax-funded subsidies for the Fed dollar are eliminated.

That is an example of an arrangement that was dictated by governments and imposed by force upon the public.

What makes you think that the gold standard was dictated by governments? All governments did was take over a practice already common in the market.

The only reason the gold standard ended was because no one wanted it.

The gold standard ended with an executive order by FDR. Not even a decision of Congress.

Labor wanted rid of it because inflation is good for labor and gold was keeping inflation too low.

What on earth makes you think inflation is good for labor? Under inflation created by the expansion of the money supply, the beneficiaries are the people first getting their hands on newly-minted money (typically, bankers or recipients of government corporate handouts). Labor, at best, gets a rise retrospectively, after prices have already gone up. Labor is the biggest loser of inflation.

It's funny because almost everybody on earth is fine with fiat currency.

Almost everybody on earth believes the propaganda and lies told them by government stooges. But hey, if this is the case, you wouldn't object to lifting legal barriers to alternative currencies, would you? And just let each person decide which currencies they really like?

Rather than an even more restrictive government currency backed by violent monopoly?

That's not the alternative either Rothbardian or I are proposing. And you should know that. We are suggesting an end to government involvement in currencies. We are proposing an end to any monopoly (violent or not) associated with currencies. We are proposing the let the market (i.e. the free choices of millions of people) determine the currency.

[SolarCross]

Bitcoin the future of African Banking?

Funnily enough Africa is probably an excellent place for bitcoin to take off.

[Eran]

Does anybody know the details of the production-limiting algorithm for bitcoin production?

What would be the consequence of having a lot of dedicated hardware directed at further bitcoin production?

Is it a zero-sum game amongst all producers, or will an annual quota be produced sooner?

[Prosthetic Conscience]

Hack attacks hit Bitcoin exchange rates

Online services and exchanges dealing in Bitcoins have been hit by hack attacks that led to a drop in the value of the virtual currency.

Trading on the MTGox exchange, which handles most trades in Bitcoins, was sluggish yesterday as the site fought off an attack.

The attack helped to force a swift fall in the price of Bitcoins.

In addition, the Instawallet website - where people store Bitcoins - is offline indefinitely after an attack.

The value of Bitcoins surged to a new high this week with each one worth about $142 (£94). Barely a week ago, each virtual coin was worth only $90.

But Bitcoins dropped sharply in value as the MTGox exchange came under a sustained attack by hackers. The vast majority of trade in Bitcoins takes place via the site.

In a tweet on its Twitter feed, MTGox said it was fighting off a distributed denial-of-service (DDoS) attack, which involves a site being bombarded with huge amounts of data. The attack was one of several against the site this week,

The attacks, coupled with a spike in trading volumes, combined to cause delays in trades being confirmed and led the value of Bitcoins to drop sharply to about $120.

The attacks could be the work of malicious hackers who were trying to "game" the exchange and manipulate the value of Bitcoins so they could cash in, MTGox said in an interview with ComputerWorld. Attackers are thought to be working to a cycle in which they sell Bitcoins when values are high, then mount an attack that forces prices to crash, buy up the cheaper coins and then let the value climb again.

MTGox said it did not know when or if the attacks would cease but said Bitcoin owners should not panic and sell off as values fluctuated. A spokesman for the exchange added that it was in the middle of rebuilding its trading technology but the new system, which would do a better job of handling the high volume of trades, would not be ready until the end of this year.

In a separate development, Instawallet has shut down "indefinitely" after hackers "fraudulently accessed" its core database. In a statement posted on the Instawallet site it said it planned to open a claim process shortly so people could reclaim their Bitcoin balance.

http://www.bbc.co.uk/news/technology-22026961

[ThereBeDragons]

I think I misunderstood myself.

[SolarCross]

The protocol adjusts the difficulty of producing new blocks every two weeks so that the supply remains predictable over time according to the graph I put up earlier. If whole lot of extra processing power is deployed in making new blocks then they have about two weeks to overproduce before the protocol adjusts the difficulty to compensate. So overall the supply is unaffected by the amount of total processing power. More processing power does make the network stronger and transactions faster, but it does not affect the supply. Those engaged in producing blocks for the network are competing for the share of bitcoins produced with each block and the more processing power they control the larger that share will be. So there is an incentive for throwing more processing power at the network but it doesn't affect the supply of bitcoins.

As it happens there is going to soon be a dramatic increase in the processing power of the network as new specialised mining hardware called ASICs are adopted. It won't affect the supply of bitcoins but it will make those using jury-rigged gpu based mining rigs much less competitive, encouraging them to either give up mining or upgrade their gear for ASICs.

[Someone5]

Does anybody know the details of the production-limiting algorithm for bitcoin production?

It's a consequence of how blocks are generated. The precise implementation details are publicly available through the description of the bitcoin algorithm (and various publicly available examples of source code for poorly optimized mining programs). It's sort of complex to go into, but essentially this is done by increasing the amount of work that will (probably) be required to solve the current block. Granted, it's always possible that someone could just get it right on the first try by pure chance. It's a matter of probability (and computational complexity), not fixed quotas.

What would be the consequence of having a lot of dedicated hardware directed at further bitcoin production?

It depends on how it's introduced. If some massive new player jumped onto bitcoin mining with ludicrous amounts of computing power, then it would temporarily drive the price of bitcoins through the floor. If instead the dedicated hardware is introduced throughout the mining collective over time, it would simply be required to keep pace with the increasing complexity.

Is it a zero-sum game amongst all producers, or will an annual quota be produced sooner?

It is a zero-sum-game in that once a bitcoin is mined, it cannot be mined again by someone else, and there will only ever be 21 million valid bitcoins. The total size of the pie is fixed, so yes the people currently mining are competing for that fixed pool of potential bitcoins.

There is no fixed annual quota--because there is no central organization issuing bitcoins.

[Eran]

Thanks both.

And just to demonstrate my laziness, does anybody know why 21,000,000 (rather than a rounder number, like 10,000,000 or 100,000,000) was chosen as the asymptotic limit?

[SolarCross]

The 21 million limit is arbitrary, it could have been something else. Litecoin is a copycat crypto-currency that works the same way as bitcoin but asymptopically approaches 84 million units.

For bitcoin in the first four years 50 bitcoins are awarded for each new block with 210,000 new blocks being created in that time. So in the first four years 210,000 x 50 = 10,500,000 bitcoins were created. The next four years the block reward is halved to 25 coins per block. So 210,000 x 25 = 5,025,000 bitcoins created in years 4-8. The following 4 years the block reward again halves so 210,000 x 12.5 = 2,512,500 new bitcoins are created. And so on until the block reward is practically zero sometime in the middle of the next century.

[Someone5]

Thanks both.

And just to demonstrate my laziness, does anybody know why 21,000,000 (rather than a rounder number, like 10,000,000 or 100,000,000) was chosen as the asymptotic limit?

The final number of bitcoins was a consequence of block creation as well; in this case it's a consequence of their decision to half the bitcoin reward per block every 210,000 blocks. To understand why Satoshi Nakamoto (whoever he or she is) decided on 210,000 blocks, you would have to find them and ask.

[SolarCross]

Now that we have clarified some of the technical properties of bitcoin, can we get back to discussing the implications of bitcoin for anarchists?

Given that bitcoin is nothing to do with governments and is a global currency it will, like gold and silver, survive the fall of governments. To the extent that it becomes people's preferred currency (due to its superior to fiat properties) it may also help precipitate the fall of governments, because the major pillar of government power comes from its monopoly over money production and its ability to take its money back as tax. If people can trade without government imposing itself as an intermediary and skimming off a portion of the value created in the transaction then the monetary power of government is much diminished. The brute force capability of government is also in turn diminished because the force capability of government rests with the number of hired goons and war gear at its disposal all of which want paying for, if government can't pay for goons and gear, they will lose them. So far so good for agorists, voluntaryists and market-anarchists, but what about the anarcho-communists and the anarcho-syndicalists? Traditional anarchists seek to abolish money and private property as well as government, so presumably they will have mixed feelings about bitcoin because while it may diminish the power of government it will also be impossible to abolish by any emerging anarcho-syndicates.

[Eran]

The main problem with bitcoin is that it depends on the ongoing existence of modern technological infrastructure.

If government's collapse is gradual and orderly, that's not a problem.

If, on the other hand, you believe in a scenario in which government's collapse is associated with breakdown of society and its technological infrastructure, your bitcoin wealth may become worthless.

In this scenario, gold is superior.

[Someone5]

Now that we have clarified some of the technical properties of bitcoin, can we get back to discussing the implications of bitcoin for anarchists?

Given that bitcoin is nothing to do with governments and is a global currency it will, like gold and silver, survive the fall of governments.

It's got quite a lot to do with governments, otherwise people could just break into your house and torture you until you give them the correct key for your bitcoin wallet. If there was some global collapse of governance, bitcoin would quickly have no value whatsoever. On the other hand, that is true of virtually everything we use as a currency, since people almost certainly aren't going to be willing to trade things with inherent value for gold or silver or other precious metals. They only do that when there is a fair amount of economic and physical security--like what governments provide.

As many have pointed out; sometimes it is easier to break an administrator's knees than to break the password file. Governments provide you with some basic abstract guarantee of physical security that makes ownership possible.

To the extent that it becomes people's preferred currency (due to its superior to fiat properties) it may also help precipitate the fall of governments, because the major pillar of government power comes from its monopoly over money production and its ability to take its money back as tax.

Wrong; the source of the government's power comes from its service to the owners of the means of production. All of its other powers exist only because it benefits the wealthy.

If people can trade without government imposing itself as an intermediary and skimming off a portion of the value created in the transaction then the monetary power of government is much diminished.

But not the physical power, which is why bitcoins will only ever be valuable for the trade of information digitally, or for illegal goods that the government already has no control over. Or perhaps as a store of value for investors with an extremely high risk preference. In terms of actual utility, bitcoins are only really useful in the sense that they can be traded for fiat currencies.

The brute force capability of government is also in turn diminished because the force capability of government rests with the number of hired goons and war gear at its disposal all of which want paying for, if government can't pay for goons and gear, they will lose them. So far so good for agorists, voluntaryists and market-anarchists, but what about the anarcho-communists and the anarcho-syndicalists?

Why would anarchists--generally advocate a property-less and money-less economy--care one whit about the currency you Unicorn Capitalists prefer? Bitcoin will never have a significant impact on the government's control of the means of production, nor would its adoption do a thing to increase democratic control of the workplace. This is a concern for capitalists, not anarchists.

Traditional anarchists seek to abolish money and private property as well as government, so presumably they will have mixed feelings about bitcoin because while it may diminish the power of government it will also be impossible to abolish by any emerging anarcho-syndicates.

It would be utterly meaningless to an anarcho-syndicalist society, in the same sense that money in general wouldn't mean much. Why care about some bits of numbers that no one would trade for? What's the appeal of bitcoin in a money-less economy? It's not even got the same sort of nostalgic appeal that actual precious metals have.

[Someone5]

The main problem with bitcoin is that it depends on the ongoing existence of modern technological infrastructure.

If government's collapse is gradual and orderly, that's not a problem.

If, on the other hand, you believe in a scenario in which government's collapse is associated with breakdown of society and its technological infrastructure, your bitcoin wealth may become worthless.

In this scenario, gold is superior.

Incidentally, gold is also worthless if society collapses. No one will trade you useful items for useless hunks of metal if there's a general breakdown of society. I mean, who would trade you a gallon of gasoline for even a pound of gold if that's quite possible one of the only gallons of gasoline you'll ever have. No amount of gold would be sufficient. Same thing with food, shelter, whatever.

If society is in freefall, barter is the only system of exchange that would be commonly accepted.