Ask Slashdot: Do You Still Trust Bitcoin? 631
Nerval's Lobster writes "It hasn't been a great week for Bitcoin. Cruise the Web, and you'll find stories from people who lost thousands (even millions, in some cases) of paper value when the Mt.Gox exchange went offline for still-mysterious reasons. (Rumors have circulated for days about the shutdown, ranging from an epic heist of the Bitcoins under its stewardship, to financial improprieties leading the exchange to the edge of bankruptcy.) But as one Slashdotter pointed out in a previous posting, Mt.Gox isn't Bitcoin (and vice versa), and it's likely that other exchanges will take up the burden of helping manage the currency. Even so, all currencies depend on a certain amount of stability and trust in order to survive, and Bitcoin faces something of a confidence crisis in the wake of this event. So here's the question: do you still trust Bitcoin?"
Re:i trust nothing (Score:3, Interesting)
There is far more stability in USD now than when it was tied to gold. How soon people forget.
My guess (Score:5, Interesting)
I speculate that the real story behind mT Gox is not the one they are telling us. My guess is that back when bitcoins were worth pennies that Mt Gox needed a bridge loan to cover a shorfall in revenues wrt to expenses. I imagine they gave themselves a loan from their holdings intending to pay it back from downstream revenues. But then bit coin went 10,000 fold in exchange rate and they could never pay back the 400 million that was now due. Their only hope was to either wait for the market price to drop, or to act like a ponzi scheme where they paid demands out of other depositors money. All of which they could do because they controlled the coins. Even if they paid everything back but $4000 of an original bit coin loan, that would now be worth the 400 million they are short. Perhaps they also boofed the maliabile ID too at some point, but they would have easily detected that instantly because their total assets would be different that their total liabilities. Unless of course they already had a deficit in assets that was masking that.
Re:i trust nothing (Score:5, Interesting)
I lost my car now I do almost all my shopping except for groceries on amazon prime. saves a lot of money and here's how:
first, the prices are good. second, there's no casual / impulse purchases. So I need a dishrack? I buy a dishrack. I don't go to bed bath beyond to get a dishrack, then also pick up a paper towel holder, potholder, popcorn maker. that is money in the bank my friend! and I mean a real bank not the fake bitcoin bank.
While we're talking about bitcoins, let me give you an analogy that is how I think of these things. when I was a kid i wouldu buy and sell girlscout cookies. buy, sell, buy, sell. they only come out like twice a year. so when they came out I would buy plenty and stock up. as plenty as i could because my money was liminted. sometimes i would pinch a little from my moms purse to get a few extra boxes.
then i would wait a month or so when they were no longer avaialable, and resell them but at a higher price. see, when they're available then you can buy the same price anywhere so why pay more? but when they're unavaialbe you have to take the asking price or take a poop on the sidewalk.
as i learned more about people's preferences, i started to modulate my prices with the size of my inventory, so i wouldn't get stuck with bad product. cuz they go bad, see? so I had to be careful to juggle product. sometimes when I had old stuff I would go into different neightbordhoods to burn to old coocies off, because i would never see those people again.
so i was earning like 40-60% markup on average, sometimes 100% markup. what did I do with the money? I didn't have a bank account. so I took the money down to the comics shop where they weree buying and selling beenie babies. i would buy the safest investments possible, you know just the regular bear nothing fancy. cuz i knew when I made it home I could take them back to cash them in later.
so what happens? I end up with a room full of beenie babies. which is kind of wierd, right? so my sister comes in, and starts tearing the tags off. which I'm like NOOOOOOOOOOO!!!! because that destroys the value, right? so now I have to make a new plan.
i went back to the comics shop, only this time instead of going in the day, I went at night. once there I took all my beenie babies and placed them in a jar outside. coming back the next day, I found that they were gone. plan foiled! went back the following week, but the store had closed. a week later, the bottom fell out of the beenie babie market. now I'm seriously out of money.
long story short, you gotta be careful when entrusting your money to a non-cash instrument.
Re:As Frontalot says (Score:5, Interesting)
how can we be sure that an exchange won't be hacked?
Exactly. We can be sure traditional banks won't be hacked because they are regulated by the government appointed banking regulator.
And if they had loose security that somehow the regulators missed and loose billions in wire-fraud? In most countries the government guarantees your funds to a certain extent. So the question becomes, do you trust your government? (or the government in charge of the foreign currency you are storing).
This is the trouble with bit-coin. All currencies are based on faith. Faith that they will hold value (that the government wont print money), faith that they will be accepted for exchange (again, government mandated for most currencies). With bit-coin, to whom do you place your faith?
Re:As Frontalot says (Score:4, Interesting)
Re: As Frontalot says (Score:2, Interesting)
The strength of govt currencies lies in their ability to create money, to expand the money supply. That's how the US got out of this latest market crisis.
Lincoln created over $400 million greenbacks to raise money without borrowing or increasing taxes. Poor farmers who wanted to avoid deflation formed the Greenback Party to continue that policy in the 1870s.
Re:As Frontalot says (Score:5, Interesting)
I'm pretty sure the housing bubble of the 2000s, which turned into the bank bust-out of 2008 and the subsequent taxpayer bailout could very accurately be described as "hacking the banks".
It was a process that started in the late 1990's, with Sen Graham's crusade to repeal Glass-Steagal. Even before the bailouts, it was the largest redistribution of wealth upward in all of human history. As a hack, it is one of the most audacious and effective. A pure example of social engineering. And its legacy is nothing short of the creation of a two-tier economy, in which there is one monetary system, one economy for the very elite, and another for the rest of us.
Oh yes, our "traditional banks" were hacked, but good.
Re:As Frontalot says (Score:2, Interesting)
by all reports that is what happened. Mt god had a fatal flaw in their version of the bit coin processing software. A flaw which could be used to duplicate and then steal bit coins.
The fact is mt gox just shut down with over seven hundred thousand bit coins that may or may not ever be able to be retrieved.