Posts tagged with: Bitcoin

bitcoin-wallBitcoin is dead, long live Bitcoin.

A few weeks ago the IRS killed off any chance that Bitcoin could become a mainstream currency. That’s probably for the best since it clears the way for it to become something much more important: the world’s first completely open financial network.

Timothy B. Lee has a superb article explaining why this could be transformative. Lee highlights one particularly helpful innovation:

One obvious application is international money transfers. Companies like Western Union and Moneygram can charge as much as 8 percent to transfer cash from one country to another, and transfers can take as long as 3 days to complete. In contrast, Bitcoin transactions only take about 30 minutes to clear, and Bitcoin transaction fees could be a lot less than 8 percent.

An “alternative to Western Union” doesn’t sound revolutionary, does it? Now look at this graphic produced by The Daily Mail which shows how much money is being sent by migrants to their families back home.
(more…)

bitcoin“For federal tax purposes, virtual currency is treated as property.”

With those ten words, the IRS has made it more difficult — if not impossible — for bitcoin and other virtual currencies from gaining widespread, mainstream acceptance as a currency for commercial transactions. Because they are now treated as property, virtual currencies are considered, like stocks, bonds, and other investment property, as capital assets and will be subject to capital gains tax.

But why does this hinder bitcoins use a currency? The answer is fungibility: Bitcoins are no longer completely fungible.
(more…)

Blog author: jcarter
posted by on Wednesday, March 5, 2014

bitcoin-deadLast year I wrote a series of blog posts about what Christians should know about Bitcoin. In response, one astute reader pointed out an odd juxtaposition: my conclusion seemed to imply that Christians should avoid Bitcoin “at all cost” and yet the Acton Institute accepts donations in Bitcoin. “I really want to know the rationale behind this,” he said.

Well, the rationale is easy enough to explain: Not everyone at Acton agrees with me. Like other nerds who have an interest in the intersection of economics, liberty, and technology, many of us at Acton disagree about the merits of Bitcoin. (I’d offer to place a gentleman’s wager on the future of the crypto-currency, but they’d want to bet using Bitcoin. Either way – whether it increased in value or went defunct – I’d end up the loser.)

Opinions are still divided, but the evidence that Bitcoin is doomed to failure piles up almost every day. Over the 8 month span from October 2010 to June 2011, the market value of Bitcoins skyrocketed 9667-fold from a value of $0.06 to $29. Later, when I wrote my series last April, a single Bitcoin was worth less than $100. Today, it is worth $660, and that’s after falling from a high of $1,100 in November 2013. A currency that can fluctuate from $0.06 to $1,110 in a three-year period is not a currency – it’s a speculative bubble.

Of course, we Bitcoin doomsayers have been waiting for the bubble to pop for some time now. We also tend to think that every new drop is a sign of it’s impending doom. Fellow naysayer Jonathan Last is sure, this time, that the end of Bitcoin is near:
(more…)

Fresco of Lazarus and the rich man.

Fresco of Lazarus and the rich man.

In the editor’s notes of the new issue of Religion & Liberty, I mentioned Time magazine’s iconic 1964 photo spread “War on Poverty: Portraits From an Appalachian Battleground.” Appalachia was a major target of America’s war on poverty. Today many of those same problems persist despite the steady stream of federal dollars. Unfortunately, unintended consequences from government spending, has expanded many of the problems, as Kevin D. Williamson covered so well in the piece “The White Ghetto” for National Review. Fr. James Schall notes in this interview, “Governments are often the one agency most responsible for poverty in the name of getting rid of it.”

What I appreciate about the interview, is Schall gives us a unique perspective and new ways to think about poverty. Schall, a Catholic priest, is a prolific author who taught at Georgetown University for over 35 years.

The feature piece of the issue, written by Eric James Russell and Rodger E. Broomé is titled, “The Tipped Scales Against our Youth.” The authors cover the challenges facing many young people today and offer solutions toward fixing them.

Rev. Johannes Jacobse offers an excellent review of George Gilder’s new book, Knowledge and Power. Joseph Sunde posted an interview with Gilder on the new book on the PowerBlog. Timothy J. Barnett reviews Reckoning with Markets: Moral Reflection in Economics by James Halteman and Edd Noell.

The “In the Liberal Tradition Figure” for this issue is Hildegard of Bingen (1098-1179). In reading some of her writings, I noticed a strong affinity for work, especially affirming the work of lay people within the Church. Unfortunately, a lot of her teachings have been hijacked by crackpots and various new age movements. R&L believes it’s important to recover the truth and holiness she championed. Hildegard is a saint in the Anglican and Catholic churches, and Pope Benedict named her a Doctor of the Church.

Rev. Robert Sirico contributes a piece titled “Breaking Bread at Acton University.” If you are considering attending Acton University and have never been, this is definitely a must read.

There is more content in the latest issue of R&L, including our executive director’s explanation of why the Acton Institute is accepting Bitcoin donations. The decision by itself has garnered considerable media coverage.

Acton Now Accepts BitcoinOver the course of 2013 we’ve enabled new methods of giving including Dwolla and PayPal.  Additionally, recurring monthly donations are now possible via PayPal and credit card.

This week we’re introducing the ability to donate with Bitcoin, the popular digital currency.  Learn more about Bitcoin at Bitcoins.com or by reading Joe Carter’s posts (part 1, part 2, and part 3) here at the PowerBlog.  The option of donating anonymously with Bitcoin is also possible.

Click here to donate to Acton with Bitcoin.

bitcoinLast month, in my series on Bitcoin, I wrote that for the crypto-currency to succeed it will one day have to become trusted by more mainstream consumers, which requires adding such features as regulatory oversight and a centralized monetary authority—the very features of other currencies that Bitcoin was created to avoid.

That day may be coming sooner than later:
(more…)

Joe has done us all a real service in putting together his three part (1, 2, 3) primer on Bitcoin (full PDF here).

I am curious, though, what the justification is for referring to Bitcoin as a “commodity” currency. Consider this from Izabella Kaminska at the FT Alphaville blog:

For those who insist that the term “fiat” refers exclusively to government-issued fiat currency, it’s perhaps better to interpret our use in the evolutionary sense.

Meaning that Bitcoin (and other virtual currencies) represent not commodity money, not managed money, nor even old fashioned government-issued fiat money, but a whole new type of super fiat that is rendered valuable by the issuing crowd (made up of independent entities) rather than the state.

The idea is that Bitcoin isn’t “declared” to be valuable by the state, but that it is “declared” to be valuable by common consent of the community of Bitcoin users. Consider this a kind of communal rather than governmental fiat.

This is why I wondered earlier about Bitcoin as “merely fiat money without the pretensions.”

But then again, isn’t this kind of communal agreement or declaration of value what money has always really been? Isn’t that, as Joe relates, what we learn from the example of the rai of Yap? (Their real innovation seems to be that they anticipated something like the “virtualization” of money exchange.)

Here again I’ll invoke the insight of Richard Whately: “It is not that pearls fetch a high price because men have dived for them; but on the contrary, men dive for them because they fetch a high price.” People are mining Bitcoins because they fetch a high price…at least for now.

[Note: This is the third entry in a three part series. You can read the introductory post here and part two here.]

The Disadvantages of Bitcoin

For people who are not obsessed with anonymity and are not waiting for the U.S. to return to the gold standard, the reasons for avoiding entering the Bitcoin market are numerous:

1. Convertibility – Whereas other currencies are convertible into other financial instruments (dollars to checks to certificates of deposit, etc.) and through numerous third-party services (e.g., Visa, PayPal, Citibank), commodity currencies like Bitcoin can only be exchanged for fiat currencies—and then only through an online exchange. Indeed, unless your computer is working overtime on Bitcoin mining, the only way to acquire the currency is to buy it from one of the 30 online exchanges.

These exchanges are completely unregulated and are subject to problems that do not affect other financial markets. For instance, in 2011 the largest Bitcoin exchange, MTGox, had a security breach that resulted in the theft of nearly $9 million worth of Bitcoins. The theft caused the value of Bitcoins to crash from $17.50 to one cent before the market was able to recover.

2. Instability – The MTGox breach—and the subsequent market crash—taught Bitcoin owners a harsh lesson about commodity currencies: they can be wildly unstable. Over the 8 month span from October 1 2010 to June 9 2011, the market value of Bitcoins skyrocketed 9667-fold from a value of $0.06 to $29.

The rate had dropped in 2012 and at the end of last year a Bitcoin was worth only $13.51. Last week, though, Bitcoins were trading as high as $266 before plummeting to less than $100. Anyone who had bought $1,000 worth of currency in October 2010 would theoretically have $4.4 million worth of Bitcoins. However, the convertibility problem would make it nearly impossible to extract that money without crashing the market and devaluing the entire currency. A gradual sell-off over an extended period of time would be necessary to take advantage of increase in valuation.

Still, being the seller of the overvalued currency is preferable to being the buyer. The Winklevoss twins, millionaires famous for their legal battle with Facebook, claim to own around one percent of all Bitcoins currently in existence (around 108,000). They began buying the currency in 2012, making some early Bitcoin holders very rich.
(more…)

[Note: This is the second in a three part series. You can read the introductory post here and part three here.]

How Bitcoin Works (The Simplified Version)

In order to use the Bitcoin system, a user installs a “wallet” on their computer or mobile phone. Once installed the wallet generates a Bitcoin address (similar to an email address) that allows the user to send and receive payments. Bitcoins are divisible to 8 decimal places yielding a total of approx. 21×1014 currency units. This allows a person to spend a fraction of a Bitcoin (the current exchange rate as of April 15, 2012 is 1 Bitcoin = $95.36000). Unlike standard e-commerce and money transfer system, Bitcoin transactions are irreversible.

How Bitcoin Works (The More Complicated Version)

understand

A Bitcoin is merely a chain of digital signatures attached to a transaction log. In the very first transaction of the system, Nakamoto’s computer program (which is open source and distributed across a peer-to-peer network) created 50 Bitcoins. When Nakamoto spent some of the coins, it created a new transaction that subtracted the amount from his account and credited it to the recipient’s. All such transfers entail the owner digitally signing a hash (a numerical value created by an algorithm) of the previous transaction and providing the public key for the encryption to the next owner. Both items are then added to the coin’s transaction log. A payee can verify the signatures to verify the chain of ownership, which prevents double spending of the same coins.

This transaction—and all subsequent exchanges—is distributed to the entire network for verification. Collections of transactions, known as “blocks,” are deemed valid when another computer on the network creates a transaction log for it that matches the previous blocks. To prevent the falsified logs from being accepted, the system must provide a means of verification that is prohibitively costly to any individual user, but relatively cheap for the network as a whole. As explained in The Economist:
(more…)

Every day we hear about contemporary, serious concepts (e.g., chained CPI) and new, silly fads (Vadering), but in the modern age it’s not always easy to tell which category a new idea falls into. Take, for instance, Bitcoin. As Jordan Ballor wrote yesterday,

bitcoinIt is certainly a phenomenon worth greater attention, and something of significant cultural, social and economic import. But I’m not buying Bitcoin, at least not yet.

My initial skepticism is in part due to my lack of familiarity with the details of the currency and its formation. I certainly need to learn more.

Many of us are in the same situation as Jordan. We recognize that Bitcoin is a significant phenomenon but need to become more familiar in order to develop an informed opinion and be able to “think Christianly” about it’s value and implications. While Bitcoin is not a topic every Christian should know something about (at least not yet), it does overlap with many subject areas of particular interest for Acton PowerBlog readers: business, technology, regulation, ethics, etc. For that reason, I thought it might be helpful to write a series on Bitcoin for Christians.

Over a series of three posts I’ll provide some background information on Bitcoin, explain how it works, and consider some of the reasons why Christians need to develop an informed opinion about the cryptocurrency. The purpose of these posts is not to tell you what to think about Bitcoin (though I have begun to form my own opinion) but merely to provide information that will help you to develop an informed opinion of your own.

We should start with the question “What is Bitcoin?” but before we can answer that we need to consider a more fundamental question, “What is money?” And that question brings us to the story of the rai of Yap.

What Yap Can Teach Us About Bitcoin
(more…)