Posts tagged with: Peer-to-peer computing

tkc1Christians colleges aren’t usually known for being on the cutting-edge of technology. But The King’s College, an evangelical college located in New York City, is leading the way by becoming the first accredited college in the United States to accept Bitcoin for tuition and other expenses:

“The King’s College seeks to transform society by preparing students for careers in which they help to shape and eventually to lead strategic public and private institutions. Allowing Bitcoin to be used to pay for a King’s education decreases our costs while simultaneously allowing our students to be a part of this exciting new technology,” said Dr. Gregory Alan Thornbury, President of The King’s College.

Coin.co CEO Brendan Diaz added, “Over the past year, the Coin.co team has led the effort to enable U.S. colleges, universities and other major institutions to accept Bitcoin without incurring any currency risk. Coin.co is proud to be working with The King’s College, and to be a part of pioneering the use of Bitcoin for education.”

Before commenting on their adoption of cryptocurrency for tuition, let me express my admiration for TKC. I’m a fan of the school’s president, Dr. Gregory Alan Thornbury, and our friend and Acton contributor Dr. Anthony Bradley, who is a professor of theology and ethics at the school. I applaud the college for being savvy enough to accept Bitcoins—and would advise students to be savvy enough not to pay their tuition with them.

The reason, as I’ve pointed out before, is that Bitcoins are no longer completely fungible.

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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.
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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.
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Blog author: jcarter
Wednesday, March 5, 2014
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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:
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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.
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Blog author: jballor
Thursday, April 11, 2013
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Bitcoin-coinsWe’ve had some intriguing discussion about Bitcoin at the Acton Institute offices today. It 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.

But also in large part my skepticism is due to my doubt about the productiveness of the effort that generates the currency. Is it merely fiat money without the pretensions? Is it the logic of subjective value-theory brought to the final conclusion? I worry that the computing power expended to mine BitCoins is vacuous and parasitic at its core. It does not represent a good or service that has been provided for or contributed to anyone.

A Bitcoin has value simply because people have decided it has value. People “mine” Bitcoins because, as Whately would note, “they fetch a high price.”

But what does a Bitcoin block represent in terms of actual human utility? I worry too that this is a system that relies parasitically on real-world resources, e.g. coal which provides a large part of the electricity, which is used to run computers so that they can then in turn “mine” something entirely virtual.

What is Bitcoin teaching us, really?

If you’ve had experience with Bitcoin or thoughts about the phenomenon, please share them in the comments below.