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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."
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US Government Embraces Bitcoin in Hearing on Virtual Currency

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  • Translation (Score:4, Insightful)

    by Anonymous Coward on Tuesday November 19, 2013 @01:09AM (#45460825)

    ...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.

    • Re: (Score:2, Insightful)

      by Anonymous Coward

      Bitcoins have always fallen under the current tax laws. There haven't been any new tax laws designed for e-currency like BTC.

      • Re:Translation (Score:5, Informative)

        by mysidia ( 191772 ) on Tuesday November 19, 2013 @02:22AM (#45461107)

        Bitcoins have always fallen under the current tax laws. There haven't been any new tax laws designed for e-currency like BTC.

        They are subject to government regulation when used as a medium of trade.

        However; at other times, there is a great deal of uncertainty -- for instance, the IRS has yet to issue any guidance, as to : whether bitcoins are classified as non-tangible personal property under the tax code, or as a foreign currency/ cash-equivalent/financial instrument.

        The difference could be very important to miners and people holding bitcoins as well: if the former, then mining bitcoins may be a non-taxable event, and tax liability might not be incurred, until bitcoins are exchanged, and a capital gain is realized.

        On the other hand --- if classified as a currency/cash-equivalent/financial instrument, there could be immediate taxes due whenever bitcoins are mined, and also: for tax purposes, requiring anyone holding them, to mark their bitcoins to market at the end of every year, and report the gain or loss based on the change of fair market value of their bitcoins in USD.

        • This isn't a work of art or something... it's designed, from the ground up, to be a currency. Trying to argue to the IRS that a mined BitCoin isn't a cash-equivalent is not going to end well.

          • So far two people have responded saying that Bitcoin clearly falls under a particular section of tax law. However, you've argued—reasonably in both cases—for different sections, commodities and cash-equivalents. I think this illustrates the GP's point quite well.

            Personally, I think you're both wrong. If you look into what Bitcoin really is, it's really closer to reputation than a commodity. What you really have, when all is said and done, is the agreement of other Bitcoin users that the person i

    • Re: (Score:2, Interesting)

      by bluemonq ( 812827 )

      Forget about taxing. Imagine how much mining the federal government could do.

      • 25 bitcoins every 7 or 8 minutes. That's the max. And that's supposing they deployed so much hashing power that the rest of the network (ie -- all the miners currently deployed, in production, or contemplated to be in construction) only accounted for the slimmest percentage of the resulting network.

        Having the us government involved might be beneficial, only in the sense that when block rewards diminish, if the fees aren't enough to reward miners to continue, then having a "miner of last resort" available w

    • No, the message is more like "We're fine with this new currency, just as long as it's tied to the almighty U.S. Dollar (ALL HAIL!!!) and it's traceable and not anonymous." In other words--we're cool with it, we just want you to strip it of everything that makes it worthwhile and hand over all control of it to the U.S. Government.

    • by wbr1 ( 2538558 )
      Congress has found a new way to accept 'donations', eg graft and bribes, and quietly deposit it in an account in the Caymans.
  • 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,

    • by Copid ( 137416 ) on Tuesday November 19, 2013 @02:01AM (#45461015)
      What prevents you from simply borrowing them and selling them? That seems like an operation that should be completely doable with any good that is traded as freely as bitcoin.
      • by cykros ( 2538372 ) on Tuesday November 19, 2013 @03:26AM (#45461283)

        The exchanges I know of thus far provide no shorts yet, but Kraken has the code laid for it (they're brand new and are waiting for volume to increase before they add that along with some other advanced trade options). And yes, this would add market stability, which is part of the reason they're adding it.

        Unfortunately, they're only available in a few states as of yet. The regulations in the US that apply to them unfortunately are on a state by state basis, and have significantly slowed the rollout of the exchange (unlike some of the prior exchanges that's gone up, they're A) operating in the US and B) being now scrutinized enough to really need to be fully compliant).

    • Re: (Score:3, Informative)

      by triclipse ( 702209 )

      Like many people, you fail see that Bitcoin does have an intrinsic value: it is a useful medium of exchange. There is a predictable inflationary curve, it is impossible to counterfeit, and there is a low transaction cost.

      It's usefulness as a medium of exchange is the same as it being useful for another purpose (such as copper's use as a conductor).

      • by Solandri ( 704621 ) on Tuesday November 19, 2013 @06:31AM (#45461793)

        Like many people, you fail see that Bitcoin does have an intrinsic value: it is a useful medium of exchange. There is a predictable inflationary curve,

        There is a predictable deflationary curve if you want to think of it as a currency - it is consistently going up in value. That makes it a terrible medium of exchange, because it encourages people to shove it under the mattress and wait for its value to go up instead of using it to get real productive work done. A good medium of exchange encourages you to go out and do something useful with it, thus encouraging more economic activity, and increasing the productivity of the people using it. As long as bitcoins' value is going up, it is a speculative investment, not a medium of exchange.

        The trick to getting a currency to work, and the reason pretty much every developed country has switched to a fiat currency, is to keep the currency's value relatively steady despite the growth of your country's economy. If your currency's value goes up over the long term, it encourages hoarding and discourages productive economic activity. With a fiat currency it is easy to maintain this balance - print more money as your economy grows. With a currency based on a fixed resource (whether it be gold or bitcoins), this only happens if by sheer luck the rate of mining new gold/bitcoins matches the rate the economy is growing. If the mining rate does not keep up with economic growth, you get deflation and people will try to hoard the currency as a method of getting rich, instead of spending it or investing it to do actual productive work.

        • Re: (Score:2, Insightful)

          by triclipse ( 702209 )

          There is a predictable deflationary curve if you want to think of it as a currency - it is consistently going up in value.

          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

          • by ibwolf ( 126465 ) on Tuesday November 19, 2013 @08:28AM (#45462169)

            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.

            • That is part of the confusion over the terms "inflation" and "deflation." Classically, "inflation" meant an increase in the money supply and deflation meant the opposite. Supply and demand remaining steady, an increase in the money supply would result in an increase in prices (the converse being true for deflation).

              Now, however, "inflation" has become synonymous with the resulting increase in of prices in a given currency (the converse being true of deflation). The problem is that people end up confusing i

          • by Copid ( 137416 )

            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.

            It rewards hoarders of the medium of exchange, that's true. But that's not really a good thing, and hoarding the medium of exchange doensn't make more funds available for investment. The quantity

  • by Derec01 ( 1668942 ) on Tuesday November 19, 2013 @01:15AM (#45460849)

    From watching a bit of the C-SPAN coverage, I found it interesting to note that several of the witnesses from law enforcement effectively stated that:

    1.) Current regulations had not hampered their ability to pursue criminals
    2.) They saw more danger from centralized currency systems based in fringe countries than from "decentralized currencies such as Bitcoin"

    • by Yvanhoe ( 564877 )
      The fact that the content of every bank account and every transaction is public makes bitcoin a very bad tool for money laundering.

      It would give you a pseudonymous social network of criminals. A law enforcement firm then just has to play crosswords and make some honey pots to get the big picture.

      Bitcoin suppresses the need for extorsion fees during international wire transfers, not the need for suitcases full of cash during shady transactions.
      • by TheCarp ( 96830 )

        > A law enforcement firm then just has to play crosswords and make some honey pots to get the big
        > picture.

        Maybe, maybe not. Problem is, its not just criminals or criminals according to any one jurisdiction. Yes there likely will be some who get caught this way, I think doing it is a lot easier to describe than to do.

        I helped track down some stolen bitcoins, and it wasn't hard. The person had made a stupid error and mixed coins he stole with an address he posted publicly in forums. However, had he not

  • And slushfunds ?

    It's the only motivator I can think of for congress to do this

  • by gman003 ( 1693318 ) on Tuesday November 19, 2013 @01:22AM (#45460885)

    So that's why BTC jumped up to $900 today, after opening around $500. I bet some speculators made a ton of cash that way.

    • Re: (Score:3, Interesting)

      by Seumas ( 6865 )

      Despite the flood of the Bitcoin Defense Force, I still purport that Bitcoin is what it clearly was from day one, back when the presentation on what it is and how to use it on their website made it look like one of those scummy scams that you had over a decade ago. You know, the "we pay you to run calculations on your PC!". Run their application on your PC 24x7 and they'll (maybe) pay you a few pennies a month. They were absurd and that Bitcoin chose to present itself in such a similar way as to give off "w

      • by VortexCortex ( 1117377 ) <VortexCortex.project-retrograde@com> on Tuesday November 19, 2013 @04:30AM (#45461455)

        Question: If the government regulates, controls, monitors, tracks, and taxes bitcoin, what is the benefit of bitcoin, anymore?

        Answer: 'Controls' is the operative word there. Right now they control the dollar -- Well, actually a non-federal owned Federal Reserve does. Would you rather be paid in IOUS redeemable at the company store, or have a real currency? The dollar is the IOU, they can print as much as they want. The same isn't true of bitcoin. The other benefit is decentralized digital transacitons without the high price-fixed cost of wire transfers. True cash exists. However, I can't throw it half way around the planet, nor can I send cash by mail.

        Comment: For the price of Bitcoin to really mean anything, you have to be able to exchange it for local currency

        Ignorance: Blissfully believing that the price of stock or the dollar really mean anything; It's the exchange rate for GOODS AND SERVICES you fool. These can be transacted with bitcoin or dollars. Except with bitcoin I can exchange them for stuff not in the company store.

        • Re: (Score:3, Insightful)

          by jd ( 1658 )

          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

          • Print all the hard currency you like, the value per unit will drop until equilibrium is reached.


            I don't know what you mean by a "hard currency" but government issued currency anywhere in the world is pegged against anything except, in some circumstances, other government issued currencies.

            No equilibrium is ever reached by endless "printing" (I know what you mean) of a currency - eventually the currency collapses through hyperinflationary price increases.

      • by jd ( 1658 ) <> on Tuesday November 19, 2013 @05:31AM (#45461635) Homepage Journal

        Have to say you make excellent points. It's why I avoided even looking at bitcoin for the longest time. (Early on, the value was less than the cost of the electricity and as the computations were only going to get harder, the likelihood of benefits was nil. It didn't help that something for nothing often ends badly for the people who think they're paying nothing.)

        Really, for a good virtual currency, you need it pre-generated and beyond the ability of computers in the next 30-40 years to potentially break. 150-200 years would be ideal. That isn't bitcoin. Don't get me wrong, bitcoin looks less vulnerable to counterfeiting than regular currencies, but I remain unconvinced that it will prove strong over the lifetime of currencies. When currency lifetimes are measured in centuries, knowing something was strong last week isn't really good enough.

        (I can't say the US decision thrills me, knowing that the same people applauding bitcoin have interfered with crypto development.)

        What we have right now is hyperinflation due to rampant speculation. A few will get rich quick, a lot will get poor even quicker when the bubble bursts. We've seen, what, 800%, 900% inflation this year? Competing with Zimbabwe? This isn't remotely sustainable, especially as everyone and their pet dog can run a bitcoin miner and cash out via one of the ATMs or an exchange service.

        We've also now seen cases of virtual bank robberies, with owners of online wallet services cutting and running. Yes, that happens with physical banks too, but all that tells me is that a lot of old problems remain, a lot of new problems are added, and still no sign of actual benefits.

        I want a virtual currency that works. Mondo experimented with electronic cash in the late 80s, early 90s, where you had smart cards you could actually use in real stores to make payments without going via any bank. It was an interesting system, it used a real currency rather than a virtual one but that's immaterial as it could have used anything. The fact is, they had a working system for utilizing electronic money without involving central systems. It should be very easy to do better today and have more places adopt it.

        Combine that with a currency that isn't scattered at random on some mathematical version of a sidewalk (pavement in the UK), and you'll have something that really does impress for all the right reasons.

        • Name one currency (with the exception of precious metals) whose lifetime is measured in centuries. You can't.
          • by Anonymous Coward

            The British pound. Around 400 years so far.

            • Just calling it the same name does not mean it is the same currency.

              The British Pound has taken many forms over those 400 years. Initally pegged to gold, then to silver, then floating freely, then pegged to gold again, then floating freely to finance WWI, then pegged to the US dollar under Bretton Woods (which in turn was pegged to gold internationally) and now it floats freely again like any other fiat currency.

          • by Copid ( 137416 )
            This is one of the weirder arguments I've heard. The summary is, "All fiat currency regimes have failed. Except the ones that haven't. Therefore, the ones that haven't failed will fail."
        • We've seen, what, 800%, 900% inflation this year? Competing with Zimbabwe?

          It is pretty clear you do not know what inflation is. It is increasing the supply of money causing the overall value of the money to go down (total value/units of supply). The *VALUE* of bitcoin has increased beyond its increased supply.
        • What we have right now is hyperinflation due to rampant speculation.

          I don't think that word means what you think it means.

          Inflation is a term conflated to mean one of two things: 1) money supply increasing, or 2) prices of goods going up. In the case of #1, a greater money supply will exert pressures to bring the price of goods higher, because you have a larger amount of currency chasing the same amount of goods. Thus each unit of currency is worth less than it was before. In the case of #2, prices can go up for many reasons, only one of which is money supply increasing,

      • its like playing the stock market buy low sell hi.
  • Huh (Score:5, Interesting)

    by umdesch4 ( 3036737 ) on Tuesday November 19, 2013 @01:37AM (#45460927)
    I guess I missed the happy, joyous part then. I watched the first hour and 20-some-odd minutes of this hearing, and if I had taken a drink every time they said "child pornography", I would be in the hospital now.
  • by Anonymous Coward on Tuesday November 19, 2013 @01:40AM (#45460941)

    Ha. Now the libertarians are going to abandon it wholesale.
    No fun when the big bad gubmint likes your freedomcoins.

    • by c0lo ( 1497653 )

      Ha. Now the libertarians are going to abandon it wholesale.
      No fun when the big bad gubmint likes your freedomcoins.

      Like the teens that left MySpace (and will leave Facebook) only because it was too full of parents, thus no longer cool... that's what you want to say?

    • Re:Kiss of death. (Score:5, Interesting)

      by Jane Q. Public ( 1010737 ) on Tuesday November 19, 2013 @02:24AM (#45461115)

      "Ha. Now the libertarians are going to abandon it wholesale.
      No fun when the big bad gubmint likes your freedomcoins."

      Nonsense. It has nothing to do with what the government likes. It has everything to do with whether, and how, government "regulates" it.

      Just watch. Somebody in government will attempt to regulate it in a way that is fundamentally at odds with the mathematics of how Bitcoin works. It's almost inevitable.

      Like, just for example: trying to legislate a fixed exchange rate for dollars. (Just an example. I doubt they'd be stupid enough to do that exact thing. But you never know.)

    • Ha. Now the libertarians are going to abandon it wholesale.
      No fun when the big bad gubmint likes your freedomcoins.

      Nah, unless the government can start printing bitcoins, libertarians who liked bitcoins (I dont know if they did), will continue to like it. It is still, in your words freedomcoins.

  • Great. (Score:5, Funny)

    by scottbomb ( 1290580 ) on Tuesday November 19, 2013 @01:40AM (#45460943) Journal

    Because everything else our glorious government tries to control turns to gold.

    • History of government regulation:

      1) Things are godawful and everybody is suffering because of X.
      2) Free-market / natural solutions start coming into place and the X situation begins to steadily improve.
      3) In the course of improving, X strikes again in a way it used to when things were godawful, though the trend is still unambiguously positive.
      4) Government steps in: WOAH!! X is **too important**! We can't let the free market handle this! Regulations begin.
      5) Progress in terms of the X situation either
  • by Animats ( 122034 ) on Tuesday November 19, 2013 @01:52AM (#45460995) Homepage

    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: (Score:2, Interesting)

      by Anonymous Coward

      Which is where paypal comes in if they are smart. If Paypal manages the red tape to become the defacto bitcoin broker, then they will have cemented their position as internet payment central. If they neglect to fill this role: they will fade in to obsolescence. Dethroned by a superior technology.

    • by elucido ( 870205 ) on Tuesday November 19, 2013 @03:15AM (#45461245)

      And that will eventually replace everything else.

    • Not only is it mostly speculation, but even the times when people claim it is being used for trade, like the Silk Road, it really isn't, it is being used to launder money. It wasn't actually being used because it is an amazing currency, but rather because people believed it was a way to anonymously buy illicit goods, ie launder money to pay for them.

      They only legit trade uses I've seen quoted have been totally worthless: Sites that will exchange bitcoins for gift cards at places like Amazon, with a 10% or m

    • by Twinbee ( 767046 )
      Which is the most reliable exchange in your opinion then?
  • by Kaz Kylheku ( 1484 ) on Tuesday November 19, 2013 @01:58AM (#45461009) Homepage

    Bribes, prostitutes, extravagance ... all require anonymous, untraceable forms of money.

    If politicians didn't require it, governments would have banned cash long ago.

    • by _merlin ( 160982 ) on Tuesday November 19, 2013 @02:19AM (#45461099) Homepage Journal

      Bitcoin is far more traceable than cash - each coin keeps its entire transaction history. Silk Road tried to do something about that with the way it would slice up all the payments and randomly assign them, so the net result was correct but it was unlikely (much of) your bitcoin went to the actual vendor you bought from. You're unlikely to have this kind of protection at a point of sale, so you're far more anonymous paying that hooker with banknotes.

      • Re: (Score:3, Informative)

        by cykros ( 2538372 )

        A transaction history isn't as useful as it necessarily sounds. I use a $20 to buy scratch tickets at a convenience store, someone else cashes in their tickets, ends up with my $20, and then subsequently uses it to buy crack in a sting operation, and they see that I was formerly in possession of that $20. So? At most, the concern here is that it may get you some unwanted attention, but it's hardly solid evidence if you have the thought to just move it between a wallets on tor exit nodes. Not to mention

        • by _merlin ( 160982 ) on Tuesday November 19, 2013 @04:55AM (#45461533) Homepage Journal

          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.

          • by James McGuigan ( 852772 ) on Tuesday November 19, 2013 @09:24AM (#45462407) Homepage

            This could be solved by a "paypal" like anonymous bitcoin transfer/laundering service.

            You make your payment to the transfer service, and they make payment to the hooker using a random selection of coins from their collective "pool". There could be a few obfuscating transfers in the middle of the process, and possibly an apparently "respectable name" as the payment beneficiary. The transfer service would charge a commission of course.

            All the wife/government would be able to trace is that payment was made to a known anonymous bitcoin transfer service... which still leaves the question of what are you hiding?

            Of course you could always create a special one time throwaway bitcoin wallet for suspicious purchases. Do It Yourself Virtualized Pimping.

        • When they see the very next transaction after you was by Silk Road ... its pretty obvious what happened. Plenty enough to take law enforcement to the next level and get a warrant.

          Its already been demonstrated to be useful for building profiles of people. Collect enough hashes and transactions and you can start attaching hashes to actual names and faces. All easy to do, especially for the government.

      • The addresses can be followed, that's true. But that doesn't mean anything while the coins are in the system. Anyone can create a bitcoin address, and get someone else to send it to them. They don't actually need to use their computer to receive or send them. They can just go to a computer cafe with the private key and move the BTC like that.

        Your problem is when you are turning it into fiat currency. There's money laundering controls that requite strict ID. I don't just mean a passport and utility bill.

  • If the government gives this at least a tacit pass, then I foresee a rise in electricity consumption. Those with non-electric heat should do well while they're crunching.

    • by N3x)( ( 1722680 )
      Not everybody who uses bitcoin mines bitcoin. To be a profitable miner nowadays you need several thousands worth of hardware. Just holding bitcoin doesn't consume any electricity, in fact you can hold bitcoin without a computer. The bitcoin ecology has shifted from an everybody who participates helps secure the network to more of a server-client relationship. As long as there are several independent mining coalitions bitcoin as system is still secure.
      • > To be a profitable miner nowadays you need several thousands worth of hardware.

        Is that currently true? I'd think the recent jump in bitcoin price would have made GPU mining profitable again for a little while.
        Is that still pointless due to all the expensive high-speed mining systems on the network these days?
  • From a government perspective what is there really not to like about bitcoin? Circulation is self limiting and all transactions might as well be posted on the front page of the New York times.

  • The hopes underlying Bitcoin rely on the belief that this currency has qualities which other currencies lack, namely anonymity and freedom from government manipulation. This hearing seems to be a bunch of government officials saying that they love Bitcoin, but the government is already getting good at figuring out who is participating in transactions and wants to figure out how to regulate it, which would be a trick to pull off without making it vulnerable to government manipulation. What is left if these a

    • Re: (Score:2, Insightful)

      by Anonymous Coward

      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...

  • From the summary: US Government Embraces Bitcoin in Hearing on Virtual Currency

    So glad that they are embracing Bitcoin. However, that reminds me of a quotation. From Wikipedia:

    In a famous exchange with John Montagu, 4th Earl of Sandwich, ... the latter exclaimed, "Sir, I do not know whether you will die on the gallows or of the pox," Wilkes is reported to have replied, "That depends, my lord, on whether I embrace your lordship's principles or your mistress."

  • I see the complaint about Bitcoin transaction history all the time in these stories. From what I can gather, there are two downsides: theoretical loss of anonymity and data storage.

    So, is it impossible for Bitcoin to eventually support some form of transaction truncation, where a chunk of transactions are authenticated and then replaced with a detail-losing marker?

    • I see the complaint about Bitcoin transaction history all the time in these stories. From what I can gather, there are two downsides: theoretical loss of anonymity and data storage.

      So, is it impossible for Bitcoin to eventually support some form of transaction truncation, where a chunk of transactions are authenticated and then replaced with a detail-losing marker?

      According to Bitcoin wiki [] it should be possible:

      At very high transaction rates each block can be over half a gigabyte in size.

      It is not required for most fully validating nodes to store the entire chain. In Satoshi's paper he describes "pruning", a way to delete unnecessary data about transactions that are fully spent. This reduces the amount of data that is needed for a fully validating node to be only the size of the current unspent output size, plus some additional data that is needed to handle re-orgs. As of October 2012 (block 203258) there have been 7,979,231 transactions, however the size of the unspent output set is less than 100MiB, which is small enough to easily fit in RAM for even quite old computers.

      Only a small number of archival nodes need to store the full chain going back to the genesis block. These nodes can be used to bootstrap new fully validating nodes from scratch but are otherwise unnecessary.

      The primary limiting factor in Bitcoin's performance is disk seeks once the unspent transaction output set stops fitting in memory. It is quite possible that the set will always fit in memory on dedicated server class machines, if hardware advances faster than Bitcoin usage does.

      • Thanks for the explanation! However, it sounds to me like this wouldn't address the anonymity concerns, because, somewhere, the entire chain still needs to be preserved. Correct?
        • Only if you want to be able to bootstrap a fully validating node from scratch. However, there is no particular reason why you couldn't bootstrap a fully-validating node from a checkpoint of another fully-validating node (plus the blocks since the checkpoint), rather than replaying all the blocks in the blockchain dating back to the genesis block. You'd have to trust the checkpoint, of course, and all data on previously spent transactions would be lost.

          To guarantee anonymity regarding past transactions, howe

  • A) They didn't embrace it.
    B) It was about the concept of electronic currency, not just bitcoin.
    C) They talked about the problems with Bitcoin specifically.

Man is an animal that makes bargains: no other animal does this-- no dog exchanges bones with another. -- Adam Smith