That's been the elephant in the room ever since Satoshi published its paper more than a decade ago. When I discuss with cryptocurrency enthusiasts I often get the impression that they think that banks are this kind of useless parasite body that somehow appears like mosquitoes around a pond in summer. That they only serve to basically operate ATMs, send you your Visa card and crash the market every other decade or so.
This is of course a gross misunderstanding of what banks are, what they do, why they do it and where they come from. In particular the idea that "bitcoin is going to kill banks" (a very common sentiment in my experience in cryptocurrency circles) is about as meaningful as "this new type of snowboard is going to kill ski resorts!". No it won't, it might change some things about how they operate but after the transition period it'll be business as usual. Cryptocurrencies don't come even close to replacing most of the services offered by banks. Actually, they don't even come close to replacing most of the services offered by actual currency.
It's this weird cognitive dissonance that you encounter in conspiracy theory circles: the banking system is this hellish beast that steals money from the honest middle-class worker, operated from a global circle of elites acting from the shadows and that must be destroyed at all cost to save humanity. How do you do that? By replacing their currency by your own, they'll never see that coming, those idiots.
You think destroying bank records will remove the power inequality from the system? Good luck with that, kid.
Power has money, but money isn't power. It's the table scraps the rest of us chase after. It's also why you can tax the rich all you want and it won't take their power away. The transactions that truly matter to them aren't usually denominated in dollars. Cash is Plan B at best.
Don't believe me? Look at stories about nouveau rich not being taken seriously. You have to work your butts off to get your kids taken seriously (if you aren't lucky or fast enough, your grandkids, assuming your kids haven't blown their inheritance by then). You don't know anybody, and you don't have anything they need. All you have is money.
Trump talked about this every time he filed for bankruptcy. I'm sure his buddies would have preferred he kept his big mouth shut.
Yeah because there are actual differences between new rich and the old rich.
I always considered two datapoints to be fulcral A) ease of use, which Bitcoin has never had and B) potential to be overtaken by an actual bank and twisted into whatever purposes it wanted due to the 51% error. That is, how hard would be it for JPMorgan or Deustche Bank to just buy 51% of Bitcoin and make it do whatever they wanted? I could never see the potential for either fact to be avoided, as much as the frothing Bitcoin-enthusiasts would like it to.
The reason I stayed in is because Bitcoin solved a seemingly intractable problem, it works in the real world, and it's survived and even thrived in the face of fierce attacks for a decade.
Yes, there are many shills who are delusional and ignorant. Yes, speculators and fraudsters are running wild.
None of that changes the fundamental characteristics that make this a fascinating and promising technology, network and social movement.
What fierce attacks has bitcoin faced?
Sure, lots of people mock and criticize it, but no real action has been taken. The people criticizing it have just as much influence (or maybe even less) than the delusional and ignorant true believers.
To me, a fierce attack would be regulatory action taken by various world governments, but that hasn't happened. To the contrary, even countries that probably should care (e.g. China, with its capital controls, and bitcoin mining seemingly used to evade them) appear not to. If anything, that shows just how insignificant bitcoin is.
My vague impression (I don't follow this closely) of US regulators is that they have given bitcoin reasonable or even slightly favorable treatment.
Bitcoin and crypto only survive because of trust. There was a time, especially on Bloomberg, when the news was constantly criticising it and sowing mistrust. "It's only used by hackers" or "hit men are murdering people for crypto on the dark web" or "terrorist are funding operations with crypto.". So there have been countless efforts to break the core of what makes a currency valuable.
Additionally, Bitcoin specifically is illegal in several countries, China being one of them. The US has also seized several piles of bitcoin and like they do with other seized assets they put it up for auction. These guys buy the stuff up cheap and immediately sell it. Now that's not a specific attack but it is damaging to prices. Lastly exchanges are requiring photo id to buy things now because of regulation which makes it even harder for people to get into. I can buy bullets and in some cases guns more easily.
So there is actually plenty, not to mention numerous attacks on the network in the early days. Who knows who was behind those.
At the end of that struggle, you still have a government in control of its financing, but the shape of it, borne through so many battles, is likely to be more efficient.
Bitcoin doesn't care how much of it you have, as it uses Proof-of-Work not Proof-of-Stake. The only thing that matters is you computational power. Now it is true that large banks could just buy lots of ASICs and try to beat the network, but that would mean a continued investment: As soon as they stop mining, the network would return to normal.
They can hurt bitcoin (not that cheap anymore) by making it unusable for a period of time, but unless they are willing to keep mining until everybody else stops, they won't be able to kill it.
As far as usability goes i don't think bitcoin is that hard: Download an app, scan a QR-code, send money. Not that complicated. The transaction rate is a problem, though.
I agree that some people are too enthusiastic about crypto, but I think it still has its place. It doesn't have to kill banks.
[1] https://www.theguardian.com/world/2005/feb/01/iraq.suzannego...
There is another possibility on Xaya and I believe Ethereum has implemented as well now. On Xaya they are called game channels. The idea is that you allow a side branching chain to develop between an arbitrary number of people, then when a game is over you inject the end of the side chain back into the main chain and verify it. They invented it for near realtime verification between consenting parties, then you only pay the main transaction fee when you get back on the main block instead of very every action. But that type of system doesn't have to be only done with games obviously, that could be applied to anything.
If you are interested more in it, you can check this video out. They have lots of documentation and tutorials for the network as well.
I don't think you understand bitcoin as well as you think you do. 51% attacks do not work like this.
So yes, 51% control could be usurped by a dedicated attacker - but the resources are no longer trivial. And as noted, this "control" doesn't buy you a great deal unless you keep it going for eternity, and for the time period you do have control all you can do is basically stop it working properly by preventing new transactions - rewriting history is exponentially more expensive the farther back you try to go.
If this were a big transaction, I might choose to wait for more than one confirmation before completing my end of the transaction. The longer I wait, the more expensive it becomes for you to conduct your 51% attack.
It really is prohibitively expensive, to conduct such an attack, when you consider a few other factors. I could double spend the money to myself, but after news of such an attack came out, the price likely could crash, reducing the prize.
Not to mention opportunity cost. If you have the means to conduct a 51% attack it means you have a lot of capital and expertise. You could put those two together to make a giant pile of money through legitimate means, like operating a hedge fund. The risk is a lot less.
The only group that would be motivated enough and capable enough to perpetrate such an attack would be a state, and why would they bother when, like was mentioned elsewhere, they could attack bitcoin with the stroke of a pen, via regulation etc. It's waaay less effort.
Also, would like to note that Bitcoin can also function as store of value just like Gold.
Any news about Lightning? Is that running live now?
For sure these banks wouldn't use their own hardware, but hire a new team, new hardware etc.
Completely wrong. There is a set of rules which define whether a Bitcoin block is valid or not, things like "the block's hash has this many zero bits" (simplifying a bit here, the actual rule is a bit more complex), "all transactions have a valid signature" (simplifying a lot here, it actually runs a sort of a small program) and "no transaction spends outputs which have already been spent". It doesn't matter how much Bitcoin you have or how much hash power you have, even if you have 100% of all Bitcoin and 100% of all hash power, if the block doesn't follow the rules it will be ignored by all validating Bitcoin nodes.
What having 51% or more of the Bitcoin hash power gains you is only that you can rewrite history. You can present a chain of blocks to other nodes, and later present a different "longer" chain of blocks to the same nodes, and they'll accept the "longer" chain and discard the older one. All these blocks, however, still have to be valid to be accepted.
You're being overly reductionist.
The functions of banks are great and valuable but they are disproportionately so. Why? Because they get free money from the Fed and are using fractional reserves.
Do you think the Bank's services would be as pervasive if the working class had a stable store of value for their work? I don't. Banks need competition and with Bitcoin and the crypto space, they finally got some serious competition.
Also, there are plenty of startups in the cryptocurrency space that ARE doing functions that banks offer. SALT is one that comes to mind quickly but there are plenty of others.
But you didn't actually tell the reader what banks _are_.
Care to elaborate?
There's some irony here.
Why do you believe this has any relevance at all? People want to buy stuff, not exchange bill with serial number #abcxyz with stuff.
And from my example you can easily understand why your assertion is quite wrong to begin with.
Because it solves the double spend problem [0] associated with digital currency without use of a centralized database.
I think that matters to people trying to avoid onerous capital controls or a government printing 31% of the money supply in a week [1]
[0]: https://en.wikipedia.org/wiki/Double-spending
[1]: https://www.bloomberg.com/news/articles/2019-02-05/venezuela...
I check for cool serial numbers fairly frequently but I couldn’t say I care about the exact bills. A five’s a five. That’s why currency is great.
That's the point of confusion. This is not an end around. This is about extracting tolls - slivers - from economic activity. They will all comply with the status quo, they will say what needs to be said, they will bow as they need to bow, they merely want to get their little cut on a billion transactions. It's nothing more than an attempt to layer another transaction processing fee-based system into/onto the global economy. There is no other point, it's why Facebook has partners like Visa interested.
These guys could not care less about replacing national currencies or doing an end run around of political control. In fact it's the exact opposite: they would want the regulators to make sure Libra is the standard that they can properly exploit, and raise the walls to other competition. That is how these companies always behave, it's rather obnoxiously predictable. They will be thrilled to work with regulators to keep things exactly as they are, with a little exception for their new baby parasite that gets 0.3% of everything (and please regulators, while you're at it, make it really hard to compete, make the regulations impossible for everybody else to comply with).
They do not want the political power, responsibility and conflicts that come with national currencies. They want the money, the fat juicy profits, that come with extracting high margin tolls. It's ideal to leave the national fiat currencies intact, so they can extract additional fees everytime people want to change their money. Libra is a rider, national currencies come and go.
Whether that's the intention or not doesn't matter, it has the potential to be and that is simply not acceptable.
When a developing world country like India needs to use monetary policy to stimulate their economy but those transmission mechanisms aren't working because a significant part of the economy is using Libra, that's a major threat to their sovereignty. It's digital colonialism.
https://www.washingtonpost.com/news/wonk/wp/2014/07/31/argen...
Or you could say that all these European superpowers of the time competed with Native Americans.
Just today, Nick Clegg, former Deputy Prime Minister of the United Kingdom, and currently Vice-President for Global Affairs and Communications at Facebook, explicitly asks for FB to be regulated [1]: "We need governments and policymakers to engage with issues like these and help set the parameters for us".
[1] https://news.sky.com/story/sir-nick-clegg-link-between-socia...
Could you explain that statement? I can’t help but counter that isn’t often the government’s control of money that enables the rise of authoritarian governments! Perhaps privatization of currency might strengthen democracy not undermine it.
At least with a government you have a shot at being ruled by something other than a private entity's self-interest.
In the U.S., there’s corruption and racism sure, but by and large money and power are congruent. The business community opposed Trumps’s response to Charlottesville because a rich black man stood up and said that’s not okay. That’s because democratic governments follow rules. You have green paper; here’s a coffee. Oh you’re black and it’s 1960? Let’s change the written rules so you can get coffee in any shop. Authoritarian governments have “rules” and rules. You have green paper? Too bad, you said something in newspaper and I am afraid of the government, so no coffee for you.
That’s what really grinds my gears about people breaking a societal paradigm like currency. Not just a fundamental misunderstanding of micro and macroeconomics (one guy on another thread said stealing money from a crypto exchange reduces the money supply and can be monetary policy), but also increasing the amount of societal chaos. How do you advance in life when common law will not protect your property?
How open a society is, are efforts mostly paid in blood by the plebians. Those who look down on others and want control are the ones who probably makes society more 'closed'.
Money is only a tool. A way to facilitate immoral exchange of earth's finite resources + human labour.
My leftist ideals would say, we shouldn't deny a fellow human access to food or a vacation just because he doesn't have anything in exchanges. Especially today that we have a problem of overbundance, and we are not even optimizing our production, but for profit.
The Anthropologist David Greaber in his book, we can observe this human compassion when in the park when some stranger kid is in danger, maybe drowning, we do not hesitate for a sec to help out, and we don't ask for anything in return.
Technically the oligopoly is overthrown. Practically, meet the new boss, same as the old boss.
FB isn't funding this project because it's a libertarian thought experiment. FB is funding it because it makes business sense.
FB's business model is using data to sell ads. Amazon.com's dominance in ecommerce- and it's entry into the ad market - puts pressure on FB's business if advertisers move their buys to Amazon.com. But I imagine if FB is able to directy connect social interactions to purchasing decisions, that's something that retailers that compete with Amazon are going to be interested in.
Mass fiat money are no more than 2 centuries old, in most places less than 60 years (see Bretton-Woods). They have to be tightly controled by state.
If the value of the coin come from the gold in it, why mint them instead of using the gold directly?
But coins show the insignia of the state (and usually the monarch) that minted it; this is an important symbol, and also a guarantee of purity and weight, at least nominally.
I don't think you're considering a long enough time scale, the minting of coins with the likeness of rulers and symbols of the power of the state is as old as the concept of currency and rulers.
There have been instances where companies printed their own script and new non-authoritarian nations might struggle for a bit early on with competing banks, but it's always resolved and power is vested in the central authority.
The role of currency from the point of view of the central authority is more than just economic - it's symbolic, it's propaganda, it's confidence in that government expressed by every citizen through the very act of accepting their currency as valuable.
Universality of your currency is kind of the best selling point isn’t it?
Also, barter worked very well since forever, in which every product is a different "coin", it just doesnt scale physically, while digital currencies do.
China allows WeChat Pay and Alipay to be predominant methods of payment, so it's not obvious to me that new payment methods threaten governments.
What, precisely, is the threat?
And what, exactly, can governments do to stop companies from offering their own scrip?
Would they outlaw Venmo? Gift cards? Airline miles?
See usage of USD in developing nations.
1. I can see the US government and perhaps the Five Eyes (https://en.wikipedia.org/wiki/Five_Eyes) wanting this because it effectively reveals lots of global transactions they are not currently privy to w/o tedious work. I find it difficult to believe that all the relevant FiveEyes agencies have not been an integral part of this from the planning stage.
2. I dont see how small nations can really stop it. They can stop transfers to/from their own currency, but can they really stop closed loop Libra systems? For example, someone in Whateveristan does some work on E-Lance/Upwork and gets paid 100 Libra. They spend 100 Libra on goods online and gets it delivered -- how could the local government stop this?
2. the finance watchdog verifies that balance sheet must close to 0 for everybody when everything is accounted for - i.e. I have 100 libra and I want to buy a printer, there has to be somebody to deliver that printer and take the 100 libra; the gadget shop can't account for the printer disappearing from inventory without accounting for 100 libra coming in, and the chain thus complete. the only thing you'd be able to buy are services and goods outside regulated economy, so sex and drugs?
The mega banks and Goldman Sachs are the most powerful organizations in this country. Even Defense arguably served their interests in many cases.
I disagree. Politicians from many countries have shown a willingness to sell out their own nation. With a high enough time preference it's entirely possible.
It's also strange to me that there is no discussion about that. Money is not only a currency you can use to buy goods and services. In case of US dollar it's a powerful political pressuring instrument. Most of goods on international markets are exchanged in US dollar. That's why US can print dollars and the rest of the world is paying the inflation costs. Additionally, money issuer (in this case US) can forbid anyone to use their currency, so they can shutdown Libra when they want and how they want, if pressured enough.
[0]https://www.nytimes.com/2019/04/07/opinion/facebook-content-...
It seems that Libra is going to demonstrate exactly why only a decentralized design like Bitcoin’s or other similar cryptocurrencies has any chance of breaking that control. They will be much much harder to attack and shutdown once governments decide this competition in their monopoly of money is just not wanted.
Are you going to back up your argument or just state it like it's a fact?
This is the same authoritarian reasoning behind things like China's capital controls, though.
That looks like a pretty questionable line of logic, because, say for sake of argument, that it can be demonstrated from an economics objective that competitive private currencies produce higher levels of growth. Now the terrorists also have us hostage economically as we need to use monopoly government money as the only way to stop them!
Come on, it’s lazy thinking to believe that only centralized authoritarian control of currency is how to keep everyone safe from various bad actors, terrorists, criminals and rogue nations. My intuition says that just can’t be correct, otherwise let’s also just put cameras in everyone’s homes ... just in case.
There is such extremism in all cryptocurrency related discussions. Why in the world would there be anarchy if central bank monetary policy was no longer effective when private currencies are used or during a Free Banking period? Why does that follow at all, by what mechanism?
https://www.npr.org/sections/money/2012/12/07/166747693/epis...
Libra is going to be backed by top currencies (probably USD, EUR, JPY, GBP). Why wouldn't the USA like that? They get to invade other countries for free.
Most countries do not like the USD. And most of them are fighting it with capital controls. The US is imposing the liberation of these economies. Through both threats and cookies. Check the FATCA for example. There is no reciprocity and yet countries are implementing it.
Libra could help the US and friends get into other countries easily.
Any history books you would recommend?
Having a centralized currency is a reasonable thing, though the Fed is a private entity, it operates ultimately like other central banks.
The banks don't have any special power - if you want to open one, you can do that right now.
If they did have some special sauce, VC would be pouring it, and mostly, it's not.
Banks don't make their money or derive their power through the 'creation of money'.
FB's move into this arena is possibly more destabilizing than anything, hopefully, the opportunities will outweigh the risks.
A bank just opened and has $0 in the vault You give the bank $1000 The bank lends me $800
Your current bank balance = $1000 My current bank balance = $800 Total money in the bank = $1800
You might say that the money wasn't created because they can't afford to pay out $1800, but if for some reason at this point they need to pay back the $1000 they can ask another bank for a loan, and point to the $800 they're owed as collateral. On top of that, both the $1000 and the $800 would be insured against the failure of the bank by the federal government. This is a simplified example of course, but when the banking system is working normally it's hard to say that they don't make their profits on the creation of money.
https://www.npr.org/sections/money/2012/12/07/166747693/epis...
Well that's certainly an understatement.
This is literally the only mention of government through-out the entire article. The only mention of banks is in the previous paragraph stating there are no banks in the coalition.
Banks and governments go together like peas and carrots, they also control pretty much everything and have for hundreds and thousands of years. This control is derived from a few places, but primarily from a monopoly on the control of the currency and the monopoly on coercive force.
No government is going to let FB and any coalition do an end run around their national currency and their banking institutions. They're also not going to partner with an international consortium to have them replaced with something they only partially control.
I really don't know why this isn't a larger part of this conversation. I think people need to be cracking more history books and less William Gibson and Neil Stephenson novels.