Consider one important asset in the world that shares the key feature with Bitcoin that there is a fixed amount of it: land.

If you look out at the world, land possession is not just unequal, but also exhibits extremely low turnover. In Britain, 0.6% of the population owns 69% of all the inhabited land in the country, and they come mostly from the same families that owned the country in 1872 (the last time a major survey of land ownership was performed): http://www.independent.co.uk/voices/commentators/johann-hari....

If you look at say Manhattan, you see the same phenomenon. All the land is owned by old people and established families. It's a place where kids have to be much more successful than their parents to be able to afford to buy property in the same place.

Who can take a look at the deflationary nature of land, and think "gee, I'd like everything to be like this!"

> Who can take a look at the deflationary nature of land, and think "gee, I'd like everything to be like this!"

People that got in early on the designed-to-be-deflationary thing they are promoting, and thus see themselves as the "old and established families".

People who think they're going to come out on the long end of the stick.

A preference for deflationary models is one of the reasons I don't take libertarian economics seriously.

     Just little deflation nearly destroyed the world economy

It's like the difference between "his car slammed into that other car" and "he was drunk". Drunk caused the accident. Accident caused the damage.

You talk about that deflation as if it just appeared out of thin air, but it was the market's natural reaction against over 25 years of Fed policy of papering over asset price corrections with massive credit injections. 1987, the Latin American debt crisis, LTCM, the tech bubble bust ... every single time, the Fed's solution to the "problem" of falling asset prices is to bail out the speculators with easy credit.

It will be much harder for similar credit bubbles to form in Bitcoin in the absence of a central bank (or even, as far as I can tell, a means of fractional reserve banking). Of course, we are witnessing periodic non-credit driven bubbles right now, but I think these will become fewer and far between if the BTC market becomes more liquid, and particularly if a means of shorting BTC comes into existence.

I don't understand this logic at all. BTC is primed for speculation, bubbles, and deflation, because it has a fixed or slow-growing supply and no automated procedure for fighting deflation by printing money. In other words, it has no central bank. There's no way it can prevent deflation and speculative bubbles. And yet as the BTC population grows, you think that speculation bubbles will reduce? That's a pretty out-there argument.

Depending on how you measure it, the share of credit which comprises the USD money supply dwarfs the amount of actual cash by something like 100:1. The cause of the deflation in the 2008 crisis was a sharp contraction in the amount of that credit, and the crisis only ended when that contraction stopped, not because of the Fed's relatively much less significant cash injections.

The sorts of sharp, catastrophic deflations that took hold in 2008 (or 1929 for that matter) are always caused by the bursting of a preceding credit bubble, usually created by central bank policy. I don't see how that kind of bubble can happen in Bitcoin. So the argument that "Bitcoin is deflationary" is true as far as it goes, but that doesn't mean that a Bitcoin-based economy would necessarily look exactly like, say, the Depression-era U.S. They're two very different kinds of deflation.

In the absence of major inflows & outflows of credit, the addition of liquidity to a market usually reduces the severity and frequency of big price swings. The very difficulty of issuing credit in BTC may very well prevent it from becoming a viable currency, but I think it's also an important brake on speculation.

Bitcoin has already had catastrophic deflations: factors of two in less than a week and factors of three in less than a month. And equally spectacular speculative crashes. The reason for this is really very simple: there's no one at the tiller, printing money to tamp down the speculation.

The kind of deflation I'm talking about -- and I think everyone on HN is talking about -- is the kind associated with speculation. If Bitcoin can't discourage speculation, and it appears by design it cannot, it is dead in the water.

So who's printing gold to temp down the speculation in that? Or what makes gold different so that it doesn't need a "central bank"?

But, here's the thing: few people have ever suggested that we actually do our regular, day-to-day finances in market-value bullion gold. Instead, it's just considered a good way to back or hedge against actual, managed currencies.

Bitcoin stands a chance, IMHO, if people get off their ridiculous Austrian Economics shtick and start treating it similarly to gold: Bitcoins as hedge against financial shenanigans in other currencies rather than Bitcoins as a way of paying your bar tab.

Basically, as bad as central bank meddling is, the alternatives are far, far worse - look at the boom/bust cycles of the 19th century. For the most part, competent central banks prevent both hyperinflation and deflation through controlled expansion of the money supply.

But more to the point, even the 19th century cycles were intimately tied to the credit cycle. It was just created by private banks operating on fractional reserves, as opposed to a central bank. There is no fractional reserve banking in Bitcoin. (Which, again, may be a reason it will never take off as a currency, I'm not sure.)

As you point out, there's no obvious way to do fractional reserves, so it can't be used for debt-based capitalism unless someone comes up with a clever mechanism for that, something deeper than commodity-as-collateral. Avoiding the currency hazards of modern capitalism by not being able to perform the underlying operations of modern capitalism is kind of cheating. And if you can do lending on fractional reserves, how do you know the hazards of reserve currencies aren't a function of fractional reserves rather than a scalable money supply?

I would argue that while the dependence on credit is real, it's not due solely to banking. The real dependence on credit is simply because wage levels are so low that most people cannot afford to pay for their lifestyle in cash, and are not even expected to do so.

When you configure the economy such that buying cars, houses, health-care, education, weddings, births, and burials almost always requires credit, then that economy will become intimately dependent on the credit cycle. If you don't like it, then you need to raise wages, reduce inequalities, and oftentimes even nationalize certain vital services, until ordinary citizens can go through life maximizing the amount of goods they pay for in cash and minimize the amount of loans they need to take out.

Otherwise, expect your society to be enslaved to the creditor class.

    Deflation and Depression: Is There and Empirical Link?

    Are deflation and depression empirically linked? No,

    concludes a broad historical study of inflation and real
 
    output growth rates. Deflation and depression do seem to 

    have been linked during the 1930s. But in the rest of 

    the data for 17 countries and more than 100 years, there 

    is virtually no evidence of such a link.

> look at say Manhattan

Cherry-picking examples like this undermines your point. The value of land is non-uniform. Of course looking at the largest urban metropolises or extremely powerful island countries, land will be valuable. In the north central US for example, away from urban areas, land is much cheaper (provided it isn't sitting on large deposits of fossil fuels, of course) and I'd guess it also changes hands a lot more often.

Bitcoins OTOH are all created equal.

Second, the example you give actually undermines the point you're trying to make. Bitcoin, if adopted in a major way as a currency, would be even more "like land" than land is generally. More specifically, it's would be like "land below 96th street in Manhattan" or "land in London" as a result of uniformly high, ever-increasing value on a per unit basis, driven by ever-increasing demand for a fixed quantity of good.

That'd make BC holders more like banks which convert between BC and other currencies on a per-transaction basis, which is how we use cash now. In that case, the value shifts would not be significant for most users of BC, nor would inequitable balances result in inequitable cultures. Having BC just means you don't have to pay a conversion/transaction fee.

But again, I'm just guessing.

EDIT: elaborating after some thought. I think bitcoin makes no sense if the UX is acquire,hold,spend; but works well if it's withdraw,transact,deposit. The deflation problem only matters if you see the general use-case as wealth storage.

Deflationary currencies are destructive.

Two completely separate forms of wealth.

(Computers with high-end AMD cards can do better - up to 1.2 gigahashes/sec on AMD's top-of-the-range card but they're also a lot rarer so shouldn't drive up the average much.)

The issue he's pointing out is that the rational, amoral actor will have to decide between a saturated market of ASICs with extremely long time to ROI, and a quick buck off of grandma's draining laptop battery.

Note: if you run Pydio, update to the newest version. Everything below 5.04 has a serious security vulnerability. That's how they got into our machine.

> it's much more profitable to mine Litecoin.

Only because its younger than bitcoin. Making bitcoins was trivial a couple years ago. Considering both have a maximum number of coins, this dicussion is academic. Once that max is hit then its just traded as any ugly market commodity.

The unfortunate side-effect of this is that LtC botnets are far more viable relative to the total network hashrate than BtC botnets, as the difference in power between commodity computers and ASICs as far as hashing is concerned is far less for LtC than BtC.

Shows how little this site knows about how normal users perceive currency.

Keep your butts, keep your LTC, and your peer cons. You guys missed the moonboat and now real users are going to dictate the future of currency.

Doge coin has arrived to crash the alt coin market and rise above to save the people from all the greed and scum that has overtaken the bitcoin inindustry. Yes I'm looking at you hacker news. Why do you all just care about money so much?

And I don't mean hacked boxens but people (mostly PhD students) working there, running some unused machine for mining under their desk.

If they give you free electricity, is it really "stealing"?

http://www.bitcoindifficulty.com/

You'd need a LOT of regular PCs to match even one simple asic. A butterfly lab's jalapeno does ~5 gigahash/sec. You'd have to infest 500 decent PCs to achieve that, and then wait about a month for about a tenth of a bitcoin.

So to get 1 btc in a month, you'd need to infect 5k PCs without them noticing that "damn, my machine is really pegged" and "golly, this laptop is awfully hot and my battery dies really fast...".

It has happened, but realistically you could just buy a miner and be done with it. https://krebsonsecurity.com/2013/07/botcoin-bitcoin-mining-b...

They were able to get ~240 machines, at a time when CPU mining was making them ~$350/day. Decent, but worth all the time to write the software and distribute it? Eh, probably not.

The rational, amoral actor with access to a botnet of general-purpose machines will have to decide between using them to mine for BTC and using them for another profitable, illegal purpose, such as relaying spam, performing DDOS attacks etc.

As the difficulty of mining increases, the profitability of mining on a botnet decreases relative to the other potential uses for the botnet.

Currently, I would be surprised if mining for BTC on home computers would yield enough coin to pay even for the cost of building the botnet in the first place.

Is this a thing? I mean, there are all sorts of fungible assets floating around the world, but I've never heard anyone talk about e.g. "the molybdenum economy" or "the Gini coefficient of the hard red winter wheat economy". Aren't economies usually located in actual places?

> Aren't economies usually located in actual places?

We have a global economy, and bitcoin advocates seem (or used to) interested in establishing BTC as a global currency with its own markets for buying and selling a variety of goods.

As your comment suggests, those populations are usually defined by being located 'in actual places'. However, they could equally be defined by some demographic factor. You could look at the Gini coefficient of income for people with blue eyes.

However, I don't see the sense in singling out just a single asset or asset class, and looking at its distribution among the whole human population of the earth UNLESS the total value of that asset is some large %%% of the total assets in the world.

I don't really understand why - if something is legal, and there are legal reasons to invest in it, then generally legal investment has been higher than illegal investment. Sure, some people will use malware to mine, but they won't be doing so with ASICs, so it won't bring in much money. So we're talking about people doing it with _actually_ stolen electricity, and you'd hope that the electricity companies were good at spotting that nowadays...

This significantly raised the electricity bills, so he was caught and prosecuted for it.

Ridiculous maximum sentences for computer misuse are not a new thing. :-(

http://www.securityfocus.com/news/300

> A college computer technician who offered his school's unused computer processing power for an encryption research project will be tried next month in Georgia for computer theft and trespassing charges that carry a potential total of 120 years in jail.

> David McOwen was working as a PC specialist at the state-run DeKalb Technical Institute in 1998, when he learned about a project by the non-profit organization distributed.net that allowed computer users to donate their unused processing power to test the RC5 encryption algorithm. Noticing that many of the machines he maintained on the seven DeKalb campuses sat idle for long periods, McOwen installed distributed.net clients at several of those locations while performing a Y2K upgrade on the machines in 1999.

http://news.bbc.co.uk/1/hi/sci/tech/1782050.stm

> But the case never went to court as earlier this month Mr McOwen accepted a plea agreement to end his two-year legal nightmare.

> Under the terms of the deal, he walked away with probation, a small fine and community service.

Similar issues will affect Bitcoin mining in the long run however I expect this to be more something that is achieved through mining bots and not through setting up server farms in houses with diverted electrical trunking.

As to electricity companies finding out, the issue here is that the 'noise' from loss of electricity in the network masks a specific house consuming huge amounts of electricity. I'm guessing there must be some sort of profiling going on to determine if an occupied house is using too little electricity.

Really? I am under the impression that stolen electricity is one of the easiest ways that illegal grow operations are discovered.

As part of reading a meter I'm guessing an inspection of the meter box can be made. I'm guessing the modern digital electricity meters are able to report usage stats back to the company.

I'm using the word 'guessing' quite a lot here.

I believe that the power companies are more likely to be of use in detecting cannabis growers. I am sure that in some areas a mini arms race has gone on for decades with cannabis growers taking electricity from the 'other side' of the meter, so that nothing shows up on the bill. I am sure that electricity companies have also worked out how to compare electricity supplied versus electricity charged for in order to detect this, at least to street level, and, after that, the infra-red camera can come into play to detect the hot-roof, either by themselves or by the police.

Given a choice of stealing electricity for cannabis or bitcoins I would be surprised if the latter was more profitable. That said, bitcoin miners probably do arouse the suspicions of the authorities. Therefore it would be quite convenient to have a 'server farm' downstairs with a 'cannabis farm' in the loft. Therefore, when the authorities come round there is a plausible reason for the electricity usage.

Thus grow-ops are basically forced to find a way to connect to the grid in an unmetered, illegal fashion to avoid being reported.

Source? Reasoning?

http://www.mirror.co.uk/news/weird-news/cannabis-farms-respo...

I have sourced all the mcdonalds wifi in my area to grow marijuana. It's like how the sonar in the dark knight works.

All of the free wifi gets channeled in to my grow lights.

Unless you simply use a ton of machines, that alone will generate some extra electricity, but nothing noticeable, versus using a huge botnet to do it for you:

"The ZeroAccess botnet is one of the largest known botnets in existence today with a population upwards of 1.9 million computers, on any given day, as observed by Symantec in August 2013."

and

"These figures give some indications of the additional power requirements of bitcoin mining on a single computer infected by ZeroAccess. We can now extrapolate these figures out to 1.9 million bots and see what the total cost/impact is likely to be for the whole botnet.

If each KWh of electricity costs $0.162 then it would cost $0.29 to mine on a single bot for 24 hours. But multiply this figure by 1.9 million for the whole botnet and we are now looking at energy usage of 3,458,000 KWh (3,458 MWh, enough to power over 111,000 homes each day.) This amount of energy is considerably greater than the output of the largest power station in Moss Landing, California, which could produce 2,484 MW and would come with a corresponding electricity bill of $560,887 a day. Despite the costs, all this energy will create just $2165 worth of bitcoins a day! With these sorts of sums it would not be economic to undertake bitcoin mining with this setup if you had to pay for it yourself. But if the bitcoins are being mined at someone else’s expense, then that changes the picture completely and it becomes a highly attractive proposition."

source: http://www.symantec.com/connect/blogs/grappling-zeroaccess-b...

Once you make it attractive for someone to do this, they're going to do it, point blank. Add in no oversight or regulation and you have a recipe for criminals to come in and take over.

Bitcoin mining has to be the most profitable (or at least close to it) use of a botnet for this to happen, and since the value of mining keeps decreasing this will by definition not be the case at some point (if it even is now).

You've missed this argument because it's an awful argument. It's a misunderstanding and misapplication of Gresham's law. It seems like the author simply wanted to use the phrase "bad X drives out good X" without bothering to understand what Gresham's law actually applies to.

Even if the greatest benefits of mining accrue to botnet operators, that doesn't affect the incentives faced by other individuals or groups weighing whether or not to invest in mining rigs. The incentives are: are the fixed cost of hardware and variable costs of power and labor outweighed by the value of the bitcoins mined. Does not matter what other miners are doing. Because of the fixed supply of bitcoins and the increasing difficulty, botnets may have an advantage. However, because bitcoin is deflationary, the rising price of an increasingly supply-constrained asset might offset the diminishing returns. That's a risk investors are going to have to weigh.

But that still isn't a case of Gresham's law.

Bitcoin may someday be better than existing currencies for some of the tasks we use them for, but it isn't yet.

Cue your reply, justifying your original universal quantification by retroactively redefining it with new exceptions.

That said I have mined and sold bitcoin (luckily a few weeks ago) I just remain skeptical about its viability to go mainstream considering these and many other barriers. I was personally frustrated by it when making a recent purchase due to the fact that my buying power fluctuated by 10% while proceeding from shopping cart to checkout.

"Ha! I'm glad you like my idea. You should send me five Dogecoin."

"Okay, so, we just have to install this wallet on your computer..."

"Uhhh nevermind."

It's all relative, I guess.

Instead of acknowledging that you don't know what you are talking about, you act like you know it all, and doing so makes you look like a fool for anyone that knows a little about the topic.

I had sent-received money from South American or African countries in Bitcoins, and they are super useful.

Countries like Venezuela, Argentina, or Colombia or countries from Africa will tax you more than 50% of everything that is sent via official channels, if they let you do this in the first place, which they wont. All the money goes to corrupt governments.

With BT not such problems.

I've studied the history of technology formally as part of my undergraduate education, and there is no such general principle of how technologies are adopted in a society. Bitcoin could quite readily die. Whether it will or not remains to be seen, but people betting real money that Bitcoin will not die are best advised to diversify their investments.