BitCoin: an alternate currency

[Driver 8]

Citizens should reject any crypto coming from big banks. If we don't we are stupid and will be manipulated the same as with the current money. It would be better to use oxycontin pills as currency in my opinion.

Caitlin Long is a 22 year Wall St vet who has written quite a bit about banks and crypto, specifically about how they will probably try to use rehypothecation to create leveraged claims on underlying assets, which is part of the risky stuff that got us into the 2008 crisis. I recommend reading her to understand what might be going on with the banks and crypto

caitlin-long.com

Caitlin Long on Forbes.com

Twitter @CaitlinLong_

 

[iatrogenic]

Caitlin Long is a 22 year Wall St vet who has written quite a bit about banks and crypto, specifically about how they will probably try to use rehypothecation to create leveraged claims on underlying assets, which is part of the risky stuff that got us into the 2008 crisis. I recommend reading her to understand what might be going on with the banks and crypto

caitlin-long.com

Caitlin Long on Forbes.com

Twitter @CaitlinLong_

Good article. It exposes how week bitcoin is and answers your question about fractional reserve banking.

 

[Monahorns]

I didn't take it as bitcoin being weak, but that "the system" isn't being honest. You don't really get bitcoin you get some kind of promise on a financial asset. Not that I can explain in detail, but it is that type of things that I was referring to earlier. Usage of bitcoin is being "managed" in order to benefit those in power and keep regular Joes from truly having access.

 

[Dionysus]

I didn't take it as bitcoin being weak, but that "the system" isn't being honest. You don't really get bitcoin you get some kind of promise on a financial asset.

That’s the rehypothecation that Driver 8 referred to. Banks make money issuing “paper claims” to assets they do not own, essentially re-using collateral to fund their own trades and borrowing. It’s a form of leverage and can be very risky. And it is legal!

The way to protect yourself from this is to transfer your bitcoin purchase from the online exchange to a hardware wallet where you have the private keys. If you hold the keys then you alone control the asset—the flip side to this is that you are responsible for securing those keys.

 

[bystander]

That’s the rehypothecation that Driver 8 referred to. Banks make money issuing “paper claims” to assets they do not own, essentially re-using collateral to fund their own trades and borrowing. It’s a form of leverage and can be very risky. And it is legal!

I wonder if the party who is issued a "right" to the collateral are aware that the bank doesn't hold title to the asset and that if the person who produced the collateral in return for a loan remains in compliance with the terms of the loan that the collateral would not be a true form of collateral?

 

[Dionysus]

I wonder if the party who is issued a "right" to the collateral are aware that the bank doesn't hold title to the asset and that if the person who produced the collateral in return for a loan remains in compliance with the terms of the loan that the collateral would not be a true form of collateral?

I don’t know all the details but it’s my understanding that the bank does own the asset. The risk is that they leverage that asset beyond it’s actual value and benefit from the spread. It’s all good as long as a run on the bank doesn’t happen because the bank would not be able to satisfy legitimate claims. I think that’s how it goes, I’m happy to be corrected on it though.

 

[iatrogenic]

I didn't take it as bitcoin being weak, but that "the system" isn't being honest. You don't really get bitcoin you get some kind of promise on a financial asset. Not that I can explain in detail, but it is that type of things that I was referring to earlier. Usage of bitcoin is being "managed" in order to benefit those in power and keep regular Joes from truly having access.

I wouldn't worry too much about "regular Joes" having access to something whose "value" fluctuates hundreds and hundreds of percentage points each year, has limited liquidity, and purports to be a currency but has no lender of last resort or government backing, and is issued based on solving a math problem. Come on man!

 

[bystander]

I don’t know all the details but it’s my understanding that the bank does own the asset. The risk is that they leverage that asset beyond it’s actual value and benefit from the spread. It’s all good as long as a run on the bank doesn’t happen because the bank would not be able to satisfy legitimate claims. I think that’s how it goes, I’m happy to be corrected on it though.

I did some quick research; from the link below:

Risks of Rehypothecation
With rehypothecation, the asset in question has been promised to an institution outside of the borrower’s original intent. For example, if a piece of real estate functions as collateral on a mortgage loan, and the lender pledges the asset to another financial institution in exchange for a loan, if the mortgage lender fails, the second financial institution may make a claim on the real estate.

Rehypothecation

 

[Joe Fan]

Latest -- still higher than its lows but .....

Bitstamp BTC/USD Charts - BitcoinWisdom

 

[Driver 8]

CNBC article on crypto

The U.S. regulatory environment has been pretty friendly so far

Bipartisan lawmakers seek cryptocurrency rules to protect consumers and keep US competitive

"Virtual currencies and the underlying blockchain technology has a profound potential to be a driver of economic growth," Reps. Darren Soto, D-Fla., and Ted Budd, R-N.C., said in a statement. "That's why we must ensure that the United States is at the forefront of protecting consumers and the financial well-being of virtual currency investors, while also promoting an environment of innovation to maximize the potential of these technological advances."

 

[Statalyzer]

The way to protect yourself from this is to transfer your bitcoin purchase from the online exchange to a hardware wallet where you have the private keys. If you hold the keys then you alone control the asset—the flip side to this is that you are responsible for securing those keys.

To most people, you might as well have just to told them to redirect the anaphasic data supplier from the mainframe to the reciprocating matrix.

 

[Dionysus]

To most people, you might as well have just to told them to redirect the anaphasic data supplier from the mainframe to the reciprocating matrix.

For sure, but the tools for managing all this need time to mature, and they will. The infrastructure is being built.

In the early 90s the only way to send an email was to manually enter arcane commands into a mail server, as there were no simple apps available. Email tools got better and now everyone can do it without needing to know what’s happening under the hood. This is how tech usually goes.

 

[iatrogenic]

It’s not the technology that sucks with buttcoin.....

 

[Joe Fan]

I am not sure who the "bullish forecasters" are here, maybe its just longs stuck in it?

However, to the extent the current price is fair value ....

 

[LongestHorn]

Ethereum Classic [ETC] 51% attack: Hackers return $100,000 in tokens - AMBCrypto

Once hailed as unhackable, blockchains are now getting hacked

 

[bystander]

From the 2nd link above:

"A blockchain is a cryptographic database maintained by a network of computers, each of which stores a copy of the most up-to-date version. A blockchain protocol is a set of rules that dictate how the computers in the network, called nodes, should verify new transactions and add them to the database. The protocol employs cryptography, game theory, and economics to create incentives for the nodes to work toward securing the network instead of attacking it for personal gain. If set up correctly, this system can make it extremely difficult and expensive to add false transactions but relatively easy to verify valid ones."

So this is interesting. The protocol is designed to create incentives for the nodes to secure the network instead of attacking it. Are the nodes run by people? What a shaking sounding operation.

 

[Mr. Deez]

It is remarkable to me that people are willing to trade their real money for imaginary money. Tin foil hat people have always done goofy stuff, but this might be the goofiest.

 

[bystander]

It is remarkable to me that people are willing to trade their real money for imaginary money. Tin foil hat people have always done goofy stuff, but this might be the goofiest.

My son did his high school senior thesis on Bitcoin. This was back in 2013. Dell and a few other corporations had announced they were accepting Bitcoins. Upon research it turned out they were providing a link to an exchange and not accepting the bitcoins themselves. They were not exposing themselves to currency risk. They were making it easy for you to convert any Bitcoins in your possession to dollars. They were a bit misleading in their ads about it too as were the other companies. It was smart for them to make it easy to convert but some of the rhetoric at the time made me think they were believers in Bitcoin and wanted it to succeed. But the real story was they knew it wasn't real money.

By the way Senor Deez, I know I owe you some comments on other threads. I get lost in the shuffle. I'll try to get to them. I always enjoy your perspective.

 

[Monahorns]

It is remarkable to me that people are willing to trade their real money for imaginary money. Tin foil hat people have always done goofy stuff, but this might be the goofiest.

I agree those dopes that exchanged gold and silver for imaginary paper dollars are super weird. Now we are all paying for their weirdness.

 

[bystander]

I agree those dopes that exchanged gold and silver for imaginary paper dollars are super weird. Now we are all paying for their weirdness.

The backing of the full faith and credit of the US Government makes that imaginary paper real. We all agreed on it. We know the drill; as long as we don't make a run on our banking system then it works. Bitcoin is not a currency. It is a hot potato "asset" that has nothing behind it.

 

[Monahorns]

The backing of the full faith and credit of the US Government makes that imaginary paper real. We all agreed on it. We know the drill; as long as we don't make a run on our banking system then it works. Bitcoin is not a currency. It is a hot potato "asset" that has nothing behind it.

I guess you believe in the fairy tale but that doesn't make it real. But I will say where you are correct is that the US$ has real value because it is essentially backed by oil. That doesn't make it real money because there is a technical definition for that and fiat isn't it.

No one alive today really agree on it and no one today has the ability to get out of any agreement. There is no agreement. There is law backed by aircraft carriers. It's like the agreement where you hand your wallet over to the thief pointing a gun at you.

Not making a run on banks, means it works. Sure. But that doesn't fundamentally change the situation.

Bitcoin also isn't real money. It was an attempt to introduce a fiat currency that could compete with $s. The sales pitch was that you couldn't inflate it and you could transact digitally, yet anonymously like cash. However, the US Government set up rules that essentially killed its usage.

 

[Dionysus]

I struggle with the notion of “full faith and credit” for an entity that has us $22 Trillion in debt and is still digging the hole.

Bitcoin also isn't real money. It was an attempt to introduce a fiat currency that could compete with $s.

I would argue with the use of the word fiat here since there is no decree or obligation. I see it as an alternative for those who may find utility with it, as some do.

the US Government set up rules that essentially killed its usage.

What rules?

 

[Mr. Deez]

Monahorns and Dion aren't wrong. Their criticisms of our monetary system have merit, and they are real reasons to be concerned. What I have a hard time with is seeing a stateless crypto currency as the remedy. I'd much sooner use some other nation's currency.

 

[Monahorns]

I struggle with the notion of “full faith and credit” for an entity that has us $22 Trillion in debt and is still digging the hole.

Bingo.

I would argue with the use of the word fiat here since there is no decree or obligation. I see it as an alternative for those who may find utility with it, as some do.

I just meant non-commodity money. It doesn't have intrinsic value. I agree with you.

What rules?

The government treats Bitcoin as a financial asset not a currency. That makes it much harder to use. As an example, you are SUPPOSED to pay capital gains tax on it for every transaction where the value has gone up since you received the Bitcoin. I am not that familiar but other laws have been set up governing how transactions can or cannot be performed.

 

[Monahorns]

Monahorns and Dion aren't wrong. Their criticisms of our monetary system have merit, and they are real reasons to be concerned. What I have a hard time with is seeing the Bitcoin as the remedy. I'd much sooner use some other nation's currency.

I think anything is on the table. The problem with other legal tender is that they have the same but worse problems than the US$. Bitcoin was an attempt to avoid that. Everybody has their own opinion on how well it is or can do that. They are all reasonable at this point.

 

[Dionysus]

What I have a hard time with is seeing a stateless crypto currency as the remedy.

I have been pondering this idea of a non-sovereign currency. We all grew up with a money supply that is issued and controlled by the government, so that's what we know, but it hasn’t always been that way.

I think this is a core part of the Bitcoin thesis — the separation of money and state. A natively digital transfer of value that is fast, cheap, peer-to-peer, borderless, and secure.

As a tech geek I am fascinated with the bitcoin protocol and how the blockchain works, cryptographic signatures, incentive mechanisms for mining, and the distributed consensus for validating transactions. In ten years of operation the bitcoin blockchain has never been compromised. That’s just a technical matter but it is impressive.

 

[bystander]

I have to laugh at the minds that think I believe in fairy tales just because I mention the key difference between a US dollar and a light on a computer, which is the backing of our government. It's a HUGE difference. Sure, we have debt issues but does that mean you're ready to switch to bitcoin? I'm not.

I am very puzzled that it is worth as much as it is. It's crazy to me.

@Dionysus I believe the article posted above mentions that the blockchain has been compromised (a 51% compromise). Here's the link:

Once hailed as unhackable, blockchains are now getting hacked

 

[Dionysus]

@Dionysus I believe the article posted above mentions that the blockchain has been compromised (a 51% compromise). Here's the link:

That was the Ethereum Classic blockchain, not bitcoin. A 51% attack on the bitcoin blockchain would cost billions in computational power and electricity just to even attempt.

 

[bystander]

That was the Ethereum Classic blockchain, not bitcoin. A 51% attack on the bitcoin blockchain would cost billions in computational power and electricity just to even attempt.

Ok. Thanks for the clarification. I thought you were referring to any blockchain. Looks like they were surprised on this one.

 

[Dionysus]

Speaking of bitcoin: has anyone gotten that scammy email stating that someone has hacked your account and caught you doing naughty stuff online and they have video of it and will send it your contacts if you don't send them a bitcoin payment?

It's a scam.