Bitcoin Bolt

via dacoinminster

I have seen the future of Bitcoin, and it is bleak.

The Promise of Bitcoin

If you were to peak into my bedroom at night (please don’t), there’s a good chance you would see my wife sleeping soundly while I stare at the ceiling, running thought experiments about where Bitcoin is going. Like many other people, I have come to the conclusion that distributed currencies like Bitcoin are going to eventually be recognized as the most important technological innovation of the decade, if not the century. It seems clear to me that the rise of distributed currencies presents the biggest (and riskiest) investment opportunity I am likely to see in my lifetime; perhaps in a thousand lifetimes. It is critically important to understand where Bitcoin is going, and I am determined to do so.

My hundreds of hours of thought experiments have been productive. I published a whitepaper about the future of Bitcoin, and because of that paper I’ll have the great privilege of sitting on the “Bitcoin in the Future” panel at the 2013 Bitcoin Conference in San Jose. Through these years of deliberation I have satisfied myself that the answer to the “Trillion Dollar Question” of whether any form of distributed currency can ever achieve a stable price, is “yes”. (There are three ways this will happen, as I have written elsewhere).

I have been predicting for years that the world’s first trillionaire by USD valuation will be an early investor in distributed currency — quite possibly Satoshi Nakamoto, whoever he/she/it/they may be. I own a few bitcoins, and I intend to keep them until I find a more attractive investment (that is, I want to invest in whatever replaces bitcoin or builds on top of it).

To many people, this sounds like an implausibly rosy future, and for early adopters that is true — it feels like winning the lottery every day. However, for most other people, the ascendancy of distributed currency systems will feel like a disaster. If you are involved in Bitcoin now, you should prepare to be almost universally hated someday.

In this article, we will examine a few simple thought experiments to show how the rise of distributed currencies such as bitcoin could create massive social upheaval due to governments’ rapidly degrading capability to fulfill their core functions of taxation and regulation of commerce. We’ll see how the end result could be extremely painful for common citizens due to previously unimaginable wealth disparities, hyperinflation of previously stable government-backed fiat currencies, and a greatly empowered criminal class.

The Bleak Future of Fiat Currencies

Anarchists and hardcore libertarians love Bitcoin, but most people outside those circles are not in favor of completely doing away with their government. If you aren’t part of a fringe political movement, chances are there is something the government does that you like, whether it’s handing out entitlement money, killing enemies, putting people in prison, building dams and roads, funding research, or any number of other things. The government can do these things because the government can collect taxes, which in turn they can do because the flows of money are highly regulated and tracked at every level. Whether you are collecting a paycheck, buying furniture, cashing out investments, or simply dying and leaving an inheritance, the government knows about it and takes a cut.

For our first thought experiment, let’s imagine a world where distributed currencies like bitcoin have become wildly successful due to technological advances which make them easy to use and completely stable. In this world government-issued money is as good as dead. It may take a few years for everyone to realize it, but there will come a point when the ever-increasing outflows of money from fiat money into untaxable, unseizable decentralized currency will reach a tipping point, and we’ll have a financial panic like the world has never seen. Frightened lawmakers and banks will try to stop people from cashing out, but that will just increase the panic. Those who don’t get out before the door closes will be in dire straits indeed. This is the ultimate bank run — the run on the world’s central banks, and who could possibly step in and restore order?

When people think of hyperinflation, they usually envision a Zimbabwean printing press running around the clock in the dark corner of a mud hut, putting ever more zeroes on cheap paper. Has it ever occurred to you that hyperinflation can happen while the printing presses are off? The value of the money in your pocket is not ultimately guaranteed by your government, but by simple supply and demand. The government controls the supply, and we control the demand. If demand falls precipitously, we have hyperinflation without ever needing to print another dollar or euro. If people start fleeing government currencies en masse, hyperinflation is the inevitable result.

The good news is that you don’t need to worry about current government debt in this scenario. If government currencies lose their value rapidly, debts which previously seemed overwhelming suddenly become much more manageable. Perhaps your debt-laden government will someday completely pay off it’s national debt by simply selling a few gold bars and a couple national parks.

The Bleak Future of Retirement

For our next thought experiment, let’s consider what will happen to Grandma. For her whole life, she has carefully saved her money, and now she is living in reasonable comfort. She gets money and health care from the government, and she has her own savings to fall back on. Grandma has done everything right, including taking her savings out of the stock market; most of her savings are now invested in the safest asset known to man: U.S. Treasury Bonds.

Rather suddenly, things start to go wrong. At the same time all her expenses start skyrocketing, the government has a liquidity crisis; they are having trouble collecting taxes and can no longer pay for her health care. Her savings are still “safe” in the sense that she will get U.S. Dollars out of them, but that is little comfort when those dollars which should have lasted years can barely pay her weekly grocery bill.

Grandma’s retirement has been sabotaged by the rise of a new kind of money that she can’t even begin to understand. All she knows is that she did everything right, and now she has nothing.

The Bleak Future Wealth Disparities

All the world’s wealth has essentially been stolen, but by whom? By you, dear reader.

We’ll be very lucky if we aren’t all rounded up and summarily executed. Thankfully, you’ll be able to use some of that money to purchase protection, but I’m not at all convinced that it will be enough. A wrathful government backed by an enraged population is a fearful enemy. Satoshi foresaw this long ago, and I doubt he/she/it/they will ever voluntarily come into the light.

If there are enough of us, and we are very careful and charming, we may be physically safe. However, the massive displacement of wealth will still have some awful consequences. People argue all the time about the societal benefits and drawbacks of wealth disparities, and the rise of distributed currencies will create disparities that previously did not seem possible. It seems clear that there will be a lot of jobs created by the new wealthy, but whether the average person is better off or not, one thing is sure to rise: resentment. What right do we have to take all the wealth of the world and put it in our pockets? Sure, a nifty new idea should pay off for early visionaries, but nobody ever expected a new idea to suck all the wealth out of the world like a financial black hole!

The Bleak Future of Law Enforcement

This is where things get really bleak. Currently distributed currencies facilitate money laundering, black market commerce (the Silk Road), and insider trading (TorBroker). These applications in their current form are just a snowflake on the tip of the iceberg. Not only will they get MUCH bigger, but we will see applications which are much less savory. Historically, the “Dark Net” accessible by Tor and private networks has been nothing more than a hidey-hole for illegal files and a hangout for paranoid schizophrenics, but it is quickly becoming the platform of choice for large-scale illegal commerce.

For this thought experiment, we will imagine that your child has been kidnapped and put up for sale on “TorSlaver”. Their business plan is to kidnap children and sell them to the highest bidder, whether parent or pedophile. The winning bidder is sent the location of the child, probably bound and gagged and dumped somewhere. As long as they don’t get caught doing the kidnapping, the kidnappers can do this again and again with complete impunity. Once someone proves it can be done, copycats will come out of the woodwork, and it won’t matter if the first mover gets caught.

As a parent of three small children, I cannot describe to you how awful this makes me feel. I have always been a very reluctant bitcoin investor, for this very reason. I don’t invest in bitcoin because I think it will bring about a happy utopian world. Quite the opposite. I invest in bitcoin because the rise of distributed currency is inevitable, and owning some bitcoins seems to be the best way to prepare for the chaos ahead. And just maybe, if I position myself correctly, I can make things a little less awful.

The Government Strikes Back

Does anyone really expect the government to sit back quietly and watch while their currency is debased, terrorism is funded, and children are kidnapped? The only question is when and how they will strike back against these forces. While the government does have a lot of options, ultimately those options only slow things down. At some point, we collectively with our governments face a difficult choice between trying to survive this deadly storm or attempting to destroy all decentralized computer networks (including the internet). The former seems unthinkable, the latter, impossible.

I wouldn’t be surprised if this chaos gives rise to a strong, centralized, one-world government which gets its revenues by tightly reigning in freedom of commerce in order to collect taxes. For instance, I will not be surprised to see a requirement someday that every person buying or selling have an implant which tightly binds their identity to the sale. Perhaps the implant will even be located on the back of the right hand or the forehead! This may seem repugnant to you now, but wait until you have lived in the storm for a while before you call it impossible. The natural reaction to the deadly chaos of decentralized currency is for the populace to embrace increasingly centralized controls on commerce. The battle lines are only just starting to be drawn, and your guess is as good as mine for how it will play out.

What Should We Do?

We need people thinking about this. I’ll admit that many of the things I wrote about may not happen at all, or may happen very differently than I imagine. However, there are lots of people touting the fantastic benefits that bitcoin and its children can give us, and I don’t see anybody talking about how bad things could potentially get.

We need solutions. When the government finally starts taking decentralized currency seriously, it will probably be doing so in a state of panic. We need to be advising governments now about how they can survive the storm and protect their populace. We need to think of ways the government can pay for its most critical operations, and what legislation makes sense to mitigate these new risks while preserving as much freedom as we can.

The Lifeboat Foundation is attempting to provide this thinking, advice, and solutions. They are already getting ready for a new advisory board, culled from computer scientists, economists, and bitcoin experts. If you make a fortune from your investments in decentralized currency, I urge you to consider how you can help all the people harmed by these rapid changes. Many bitcoin enthusiasts seem to think they will get to retire on a private island with a harem and a stable of Italian sports cars. This is wrong. Bitcoin investors need to someday become bitcoin philanthropists, and our giving needs to be targeted at helping all the people we have harmed. The Lifeboat Foundation is one option, but I’m sure there will be others.

I first published this article on the blog of the Lifeboat Foundation: http://lifeboat.com/blog/2013/04/bitcoins-dystopian-future
Reddit version is here: http://www.reddit.com/r/Bitcoin/comments/1cos8x/bitcoins_dystopian_future/

tl;dr: Wildly successful distributed currencies could hurt a lot of people.

Running of the Bulls

The resistance at 95 turned out to be exactly the catalyst we expected it to be. The Mt. Gox DDoS slowed volume and delayed the break-out, but as we noted yesterday via twitter while it was happening, there were still strong signs of bullish sentiment. Contrary to prior DDoS attacks, the market remained largely unfazed and used the opportunity to take a breather from the aggressive swings that have characterized the last few days. The 95 level quickly turned into support, further confirming the market was prepared for a breakout.

Bitcoin looks to have put in a solid double bottom over the last week and has repeatedly pushed through upwards resistance.  Looking at the 4-hour chart, the 7-period EMA proved to be a strong resistance during the latest downward trend, but we’ve now broken through it and are now printing above it consistently. There was also a bullish crossover of the EMAs yesterday indicating a change in sentiment.

The post Bitcoin Trading: 24 Hour Update – Upward Breakout Realized appeared first on The Genesis Block.

By Jon Matonis
Forbes
Sunday, April 14, 2013

http://www.forbes.com/sites/jonmatonis/2013/04/14/flerovium-tangible-nanomoney/

I need a break from Bitcoin. Let’s discuss the real future of money.

Beyond stable isotopes and naturally-occurring materials are the superheavy elements or SHEs. Scientists have recently added
two new man-made elements to the periodic table — flerovium (element
114) and livermorium (element 116), with chemical symbols Fl and Lv.

After being created by smashing atoms together, these materials decay within seconds but long-lived SHEs are a theoretical possibility. This undiscovered
region in the periodic table where heavy elements become stable again
is known as the “island of stability,” first proposed by Glenn Seaborg
in the late 1960s. If individuals prefer something more tangible over an
amorphous cryptocurrency like bitcoin, then the edges of molecular
matter in a nanotechnology future may hold the answer.

If some form of physical specie is even useful in an era of
ubiquitous artificial molecular machine systems, money would still
require certain attributes such as being a store of value, divisible,
portable, safe, unable to counterfeit, and self-validating.

Nanotechnology scientist Robert Freitas suggests that the future of money lies with elements like flerovium, or what he refers to as tangible nanomoney. Flerovium
is a radioactive chemical element first created in 1999 at the Flerov
Laboratory of Nuclear Reactions in Dubna, Russia by colliding
Plutonium-244 and Calcium-48 nuclei. Prior to May 30th, 2012, the
unstable isotope was known as ununquadium.

After restricting his analysis to ordinary matter, as opposed to
antimatter, Freitas compares the rarest elements along the natural
isotope spectrum of potential monetary candidates such as technetium,
helium, xenon, osmium, tantalum, and gold (however in a nano-age, easily
extractable inert rare elements will have alternatives).  Ultimately
concluding that a man-made superheavy element like flerovium best fits
the overall criteria for physical specie, he describes how the element
could likely be introduced into society circulating as coinage.

A flerovium coin would be fused with cheaper bioinert materials of
the nano-age such as gold, platinum or diamond. Such a coin would be
sufficiently costly to manufacture and have a relatively long half life,
possessing negligible radiation and biotoxicity risk due to the very
low concentration of SHE trace amounts.

These hypothetical SHE coins would be stable and long-lived. Freitas estimates that a coin with $1 million face value would only need to contain 10^⁹ SHE atoms worth $0.001/atom. Therefore, assuming a
10⁶-year half life, there would be only ~2 disintegration events per
day putting it well below the disintegration levels of today’s base
metal coinage. Rather than suffering from the insidious effects of
government-induced inflation and coin clipping, market-based nanomoney
would lose value due to radioactive decay. A million-dollar coin would
lose approximately ~$0.50 per year or ~$500 per millennium from
disintegration.

In addition to flerovium, Freitas admits that some other relatively
stable superheavy elements may also be “coined” for the ultimate
tangible nanomoney. So that’s the choice for our nonpolitical money of
the singularity — low radiation coinage or digital bitcoin, you decide.

The fourth largest Bitcoin exchange in the world, BitFloor, has announced that it is closing its doors, and will soon be refunding deposits to customers. The announcement has nothing to do with recent technical problems that all exchanges have been facing for the past week to due the sudden massive increase in trade volume; rather, the root cause behind the shutdown is the closure of BitFloor’s US bank account. Founder Roman Shtylman writes:

I am sorry to announce that due to circumstances outside of our control BitFloor must cease all trading operations indefinitely. Unfortunately, our US bank account is scheduled to be closed and we can no longer provide the same level of USD deposits and withdrawals as we have in the past. As such, I have made the decision to halt operations and return all funds. Over the next days we will be working with all clients to ensure that everyone receives their funds. Please be patient as we process your request.

– Roman

founder – bitfloor.com

Trading has been suspended, and BitFloor founder Roman Shtylman assures users that they will get all of their current deposits back over the next few days, including USD holdings which will be refunded directly to depositors’ bank accounts by ACH transfer. International users are asked to await further instructions.

The exchange was a very popular way of buying bitcoins in the United States, so BitFloor customers will now have to look for alternatives. Some BitFloor users will undoubtedly be picked up by the dominant exchange MtGox through its North American partner Coinlab, although other options include Coinbase, CampBX and BTC-e.

Particularly affected by the shutdown are those users who had lost their deposits when the exchange was hacked in September. BitFloor lost $250,000 from the hack, normally a fatal loss for an exchange of its size, but BitFloor soon came back online with the promise that it would eventually pay back its depositors over time. The exchange even started fulfilling its promise, paying back 1.7% of the money owed in November and another 1% in March, but the remainder of the debt remains unpaid, and although most people had already written off the loss in September, there is now no longer any hope at all that the money will ever be recovered.

The announcement is also an unfortunate one because it represents a step backwards in the progress of the exchange industry as a whole. BitFloor is far from the first Bitcoin exchange to fall victim to this kind of shutdown; many Bitcoin exchanges around the world, including several times even MtGox, have had their bank accounts shut down, although in MtGox’s case the exchange’s main bank account in Japan has remained unscathed. The number of shutdowns has waned in recent months, but the risk has remained as risk for every exchange in the industry since exchanges first began to appear en masse in 2011. Now, when the need for more exchanges is clearer than ever, a reinforced precedent of banks shutting down smaller exchanges may instead push more users to larger and generally more resilient exchanges like MtGox out of fear for the safety of their funds. Fortunately, today exchanges do place much more emphasis on maintaining a healthy relationship with their banks and ensuring legality, and new alternatives are constantly appearing. Tradehill intends to launch a new, high-quality Bitcoin exchange soon, the cash-based Bitcoin ATM continues to be under development as a completely fresh alternative, and we can be sure that there are other projects now under development. Although Bitfloor will certainly be missed, hopefully it will soon find an even better replacement.

The post BitFloor Shuts Down appeared first on Bitcoin Magazine.