US Government Embraces Bitcoin in Hearing on Virtual Currency 233
Daniel_Stuckey writes "Congress held its first-ever hearing on virtual currencies this afternoon, and it may have been the best PR boost bitcoin's had yet. The tone at the hearing held before the Senate Homeland Security and Government Affairs Committee was overwhelmingly positive as the panel weighed the risks of the technology that grew out of the criminal underbelly of the web, with the potential economic value of the now-booming futurist money. The prevailing sentiment over the two-hour deep dive into the pros and cons of the digital coins boils down to this: We need to uphold America's position as center of technical innovation by welcoming the new currency—but that that can't be done without government safeguards and regulations."
SonicSpike wrote in with a link to another report in Bloomberg. The Federal Reserve has no plans to regulate Bitcoin (lacking regulatory authority), but the SEC chair wrote "Regardless of whether an underlying virtual currency is itself a security, interests issued by entities owning virtual currencies or providing returns based on assets such as virtual currencies likely would be securities and therefore subject to our regulation."
Translation (Score:4, Insightful)
...but that that can't be done without government safeguards and regulations
What they really mean: Congress is very excited at having found something new to tax.
When is the government actually right? Ever? (Score:2, Insightful)
Think about it, governments are basically contrarian indicators to any truth or knowledge or insight. That's all I wanted to say about this: BTC can be 1,000,000 USD per coin tomorrow or it could be 10 cents. Nobody knows, there is no intrinsic value whatsoever, more currencies of this type are created all the time, that's how you have inflation in BTC (never mind that every single BTC is actually a stack of 10,000,000 coins in its own right, all of which have exactly the same intrinsic value as the 1BTC, which is to say 0).
BTC may as well be 1,000,000,000 dollars in 2 months, who knows, but without a mechanism to SHORT this coin (except by not owning it), what I mean is without a mechanism to borrow coins to sell them, there is no downward pressure at all, while so many people are enticed into this particular pyramid, feeling like they are missing out on something. The early holders of BTC may all be millionaires right now if they sell. They have everything to gain from higher prices, they won't sell and if you want to buy, you have to pay more and more.
What happens when large holders want to sell without any prior shorting in the market?
Re:Translation (Score:2, Insightful)
Bitcoins have always fallen under the current tax laws. There haven't been any new tax laws designed for e-currency like BTC.
Re:Oh look! (Score:5, Insightful)
Downside though is the extreme volatility of them.
No one is going to convert their millions in a slush fund into bitcoins if it'll mean that the value will spike and dip on daily basis. Financial security means confidence in a currencies value.
Now for some legit exchanges (Score:5, Insightful)
The problem with Bitcoin now is that it's being used mostly for speculation, not for trade. You can't price anything in Bitcoins when the price changes 30% in one day. If you accept Bitcoins for anything that doesn't have a huge markup, you can get clobbered by the price fluctuation before you get the payment converted.
Worse, the "exchanges" are very, very flaky. Over half of the Bitcoin exchanges have gone bust. Mt. Gox hasn't paid out US dollars since August, large euro payments seem to be randomly delayed, and some days customers can't get Bitcoins out. Coinbase, which is a dealer, not an exchange (you're buying and selling to and from them) will sometimes drop out of the market because they can't buy or sell Bitcoins (and actually get the funds delivered) on some other exchange. Not one Bitcoin exchange is publicly audited or insured, yet they hold customer funds.
Tradehill was going to be the "legitimate Bitcoin exchange". They went bust. Another exchange in China just disappeared last week, with the customer money. A solid exchange, registered as a broker/dealer in some reasonably legit country, would be a big step forward.
Re:What's the point of Bitcoin if this happens? (Score:2, Insightful)
Nice strawman you got there.
Find anyone with a clue about how bitcoin works (no, that does not include tech "journalists") claiming it's anonymous.
Oh, everyone says it's a pseudonymous public ledger? Who would've thunk...
Decentralized exchanges will replace centralized (Score:5, Insightful)
And that will eventually replace everything else.
Comment removed (Score:3, Insightful)
Re:Oh look! (Score:4, Insightful)
It really depends on the amount of invested (or converted) money. The ups and downs are a symptom of the poor market depth of bitcoin. My real problem with it is that I don't see the market depth becoming deeper any time soon with the deflationary properties of bitcoin.
Re:What's the point of Bitcoin if this happens? (Score:2, Insightful)
What is left if these are no longer credible advantages?
A new coin will be born?
Ash nazg durbatulûk
Re:Anyone in politics should absoutely love this! (Score:4, Insightful)
But if you're worried about your wife finding out you're frequenting the hookers, the only thing she needs to find is the wallet the 'coin was in immediately before it ended up in the hooker's/brothel's wallet. She just needs to see a (you,hooker) sequence. It doesn't matter where the 'coin goes after that, and the hookers could easily be keeping all the information on which wallets they were paid from before they transfer the 'coins onwards. I'll keep paying for hookers with cash, thank you very much.
Re:bit bubble? (Score:4, Insightful)
currencies don't and can't exist in a vacuum outside the framework of rule of law with zero transparency and accountability
Oh yes they can. Was the case for centuries and centuries during the Roman Republic. Any coin would be traded on the basis of the instantaneous value of its gold, silver or copper part. If you wished to pay in, say, Greek statera or Seleucid Antiochian gold coins, the city-state in Greece or the Seleucid empire had no say in and no overview over the transaction. It was a private deal between a private person ( you ) and some private merchant. Only the Roman emperors began to draw control over currency towards them, e.g. Diocletian managed to force a ( then much-needed ) devaluation of the Roman sestertius, something that would have been impossible under the Republic.
Re:That explains the spike (Score:3, Insightful)
First, not really. Bitcoin is only usable because those IOUs exist. (Well, they're not really IOUs, since the sum value of hard currency will always equal the sum value of what they're pegged against. A floating currency is pegged against the nation. Print all the hard currency you like, the value per unit will drop until equilibrium is reached. They are shares, just like any other, and are priced by the market just like any other.)
Because the sum of the hard currency ALWAYS equals the sum of the goods and services available, a virtual currency for goods and services cannot have value if the hard currency has no value, since they value precisely the same thing.
Can bitcoin actually buy goods and services, though? One pizza place is a start, but not a very exciting one. Mondo started with the entire town of Swansea and still didn't get enough momentum going. The only way to currently use bitcoins for anything* is to convert them at places like MtGox for hard currency.
*Anything not pizza. Or drugs. I suppose I should include that, since there are bound to be people wanting to recreate the Excel flight simulator effect.
Re:When is the government actually right? Ever? (Score:2, Insightful)
You conflate two different concepts. There is no doubt that the number of Bitcoins is increasing on a predictable curve - by definition that is an "inflation" of the currency. Do not confuse that with a rise in the purchasing power of the currency and the consequent drop in the price of goods and services as priced in BTC.
But you are right that it is also deflationary, just not in the way in which you think. It is my understanding that Bitcoins can be irretrievably lost. Eventually, after all the Bitcoins have been mined, the number of Bitcoins in existence will start to fall (in other words, the currency will deflate, however slightly).
It's hard to believe that people actually think this way, but a century of central banking propaganda has had its intended effect.
Though certainly true that rapid fluctuations in a currency's value make it inconvenient as a medium of exchange (the problem with BTC right now), a rise in the value of a currency rewards savers and increases the pool of savings available for investment in productive economic activity at lower interest rates. An endlessly inflated fiat currency has the opposite effect: it encourages malinvestment in unproductive economic activity (also known as "bubbles" - e.g., internet stocks and real estate), punishing savers and rewarding debtors. Though interest rates can be kept artificially low for a time, eventually either interest rates must rise or the value of the currency must fall (or even both).
Re:When is the government actually right? Ever? (Score:5, Insightful)
You are forgetting another deflationary pressure on bitcoin; increased adoption. As more people want to use bitcoins the demand for them goes up. Demand goes up, so does the price of bitcoins and thus the commodities prices expressed in bitcoins go down. Deflation.
Given how little bitcoins are actually used today this is a very significant hurdle to more widespread use.