Marc Andreessen On Why Bitcoin Matters (And A Critique) 332
New submitter Ramtek writes "Marc Andreessen writes an interesting editorial on how he how he believes Bitcoin is the first practical solution to the Byzantine Generals Problem and why that is important. He also addresses many of arguments against its future by its critics such as its current limited use by ordinary consumers, its current volatility, its potential lack of acceptance by merchants, and many other issues. While politically agnostic the piece is squarely in support of Bitcoin but presents a more mature perspective than many current Bitcoin editorials."
eggboard wrote in with a rebuttal: "Marc Andreessen wrote an essay in the New York Times in which he tried to make the case for Bitcoin going mainstream for payments, if not as a currency. After comparing Bitcoin to the rise of personal computers and the Internet, he tries to explain how it eliminates fraud and will solve global money transfers and the plight of the unbanked. I wrote a critique of these and other points in his essay."
The Problem (Score:3, Insightful)
The problem with Bitcoin is once a Bitcoin is lost, it's gone forever and can never be replaced. There's no provision in the system to void a coin and then mine a new one.
Therefore if bitcoins are lost at a rate > 0 the probability there will be zero bitcoins is 100% over time.
Re:The Problem (Score:3, Insightful)
Therefore if bitcoins are lost at a rate > 0 the probability there will be zero bitcoins is 100% over time.
Nope. That's not true. Limiting series can tend to any value. Let's say stuff is lost once per hour. If the first unit lost is 1/4 a coin, then 1/8, then 1/16 and so, then a total of 0.5 bitcoins will be lost once t->infinity. Thankfully there are millions of bitcoins, so losing half of one won't matter.
Re:The Problem (Score:5, Insightful)
Re:The Problem (Score:4, Insightful)
I would say "The Cat" is right.
The more persons that uses Bitcoin the more coin's will be lost.
The time between finding new Bitcoins is getting longer and longer. And they do not replace the lost ones they are just generated.
So if Bitcoins becomes a every man/woman thing. Then the value of a single Bitcoin will raise to something insane before it will just die because the number of persons actually having coins will be to small to function as a currency.
Re:The Problem (Score:1, Insightful)
The second problem is that Bitcoin is unstable. Yes, it is worth $816 right now, but if I'm going to make a payment, and some exchange gets hacked, my coins will be worth half that. If another version of CryptoLocker comes out, then my coins will double or treble in value. For an investment, or just a gamble, maybe.
The third is no regulation. Nothing prevents exchanges from making off with whatever they have and coins stored with them. In fact, it may not even be considered theft, and good luck getting a government to actually bother prosecuting the exchange owners.
BitCoins are a solution in search of a problem:
They don't have anonymity, unless one does shell games with wallets. Might as use PayPal and have some added protection.
There are better investments. I'd rather invest in a crowd-funding site so a geek can get his latest app to market. If it fails, at least someone had a chance at a dream.
They have no intrinsic value. Dogecoin can be stated to be far more valuable. Why? Because I said so.
Re:The Problem (Score:4, Insightful)
Not quite the same thing, yo (Score:5, Insightful)
"Critics of Bitcoin point to limited usage by ordinary consumers and merchants, but that same criticism was leveled against PCs and the Internet at the same stage."
Sure, but "at this stage" people who owned PCs weren't mostly buying them to hoard them for their future value.
Re:The Problem (Score:5, Insightful)
I would say "The Cat" is right.
No, the cat is wrong. He claimed there will be zero, merely because they are being lost. That is mathematically incorrect.
On a more practical note, as they are lost, they will slowly increase in value. However they are divisible. People will be losing small fractions of a coin rather than whole coins. The more spread out they get, the smaller fractions people will be losing.
Criticisms Are Largely Off The Mark (Score:5, Insightful)
A) "Fees" are generally not charged... most transactions have essentially zero cost.
B) The criticism that development of the Internet was "open" but Bitcoin was not is also moot: Bitcoin is open-source, and anybody can examine the code for secrets or flaws.
There are other subtleties as well which I will not get into.
Re:Bitcoin is not going to last... (Score:4, Insightful)
Verification Time (Score:5, Insightful)
I'm still concerned with the verification time required to show that double spending hasn't happened. It's simple to double spend bitcoins, though within 20 minutes or so the blockchain will show which transaction went through. This means bitcoins can be used for online orders (as long as the seller is trusted because no chargebacks), but waiting around at the Target checkout for 20 minutes can't happen, at least with only direct bitcoin transfers. You could have a processor guarantee with more information to save time, but that's more like an already existing debit account and less like the bitcoin transfers people are excited about.
"cryptocurrency sort of works" (Score:4, Insightful)
Re:The Problem (Score:4, Insightful)
It would be kinda funny to see a world with only 1 bitcoin left, spread among billions of users.
Not really. A decent chunk of change would be called a Satoshi and afterthe protocol's updated, I'm sure a new name would spring up for whatever 10^-15 BTC is called. There's nothing special about 1 bitcoin.
Re:The Problem (Score:4, Insightful)
I lost a $100 bill at the casino. Can you void that and issue me a new one please?
YOU lost the $100 bill....but SOMEONE ELSE found it and used it.
If you lose a Bitcoin, it's gone forever, and NOBODY can use it.
Whether or not this is a problem is left as an exercise for the reader.
Showing value (Score:5, Insightful)
The problem with Bitcoin is once a Bitcoin is lost, it's gone forever and can never be replaced. There's no provision in the system to void a coin and then mine a new one.
Therefore if bitcoins are lost at a rate > 0 the probability there will be zero bitcoins is 100% over time.
Is that the problem?
I thought it was volatility. No, wait... it was a pyramid scheme. Or rather, because the US won't accept it for taxes. Or was it because it's deflationary? Heck, I just don't know any more.
Economists will demonstrate something by telling stories, let's demonstrate something by showing value.
1) BitCoin has very small per-transaction fees. There are a whopping-big number of credit card transactions each day, each with fees of about 5%. Bitcoin will eliminate most of these, for a whopping-big cost savings.
2) BitCoin increases the market to people who don't have a bank account. That essentially doubles the potential customer base.
3) BitCoin allows for micro-payments. This increases the number and type of sales possible.
4) BitCoin almost eliminates counter-party risk [investopedia.com]. No authority in the financial chain (PayPal, payment clearing center, credit card company, bank, US government) can affect the transfer. No one can be "banned" (like Wikileaks), no one can be threatened with bad credit.
Assign value to each of these points and total them up (there's some subjectivity), then compare that value with the negative utility from losing coins over time.
Which is worth more?
All the other potential problems are just that - potential problems, and appeals to these problems are merely guesswork and rhetoric.
BitCoin will bring enormous cost savings, and that's why people will use it.,
Re:Verification Time (Score:5, Insightful)
If I swipe my debit card today, the payment processor doesn't transmit actual dollar bills and coins on the spot. Over simplifying, the transaction is logged and my bank will guarantee to pay the seller at some point in the future.
For many transactions, I expect that Bitcoin will be used the same way. You deposit Bitcoins at your bank. When you use a debit card, you aren't transmitting actual Bitcoins, but rather setting up a transaction that will be settled later by the bank and the seller... just like cash today.
When you deposit your Bitcoin, that will be a true Bitcoin transaction in which your bank will probably merge that value in with other Bitcoins it has obtained. Your account will contain a record of the deposit so the bank can keep track of how much of its total Bitcoin allotment is yours. When you withdraw or debit your account, the bank will perform the Bitcoin transaction and record it on your account. In all of the above, substitute "Bitcoin" for "cash" and it is, for most practical purposes, the same as it is today.
Beware of "We" (Score:3, Insightful)
The wealthy elite don't need another currency.
Those of us living paycheck-to-paycheck need a currency whose value doesn't decay while stored in cash/checking (or the modern equivalent).
Those of us in the middle class need something that won't fall victim to another anti-Wikileaks financial blockade.
So when you say "we", it goes to show which group you identify most with, and how unaware you are of people's needs outside that space.
Re:Here is why it doesn't (Score:4, Insightful)
Okay, I'll admit regional political constraints may end up affecting Bitcoin - Glenda may ban the usage of Bitcoin in Oz for example.
However, it is pretty universal - anyone, anywhere who has access to the internet can get in on the game, local laws aside. And there's lots of places in the world where Bitcoin, even with all its problems, is considerably superior to any other non-cash alternatives. Just try sending money internationally to your dirt-poor relative in an unstable African nation any other way.
Re:Bitcoin is not going to last... (Score:4, Insightful)
Sadly, Glenn Fleishman suggests to resort to the use of violence (recourse in a court system, based on government theft and coercion) in order to seek a "remedy" to these problems, whereas many would rather see people be more careful with their transactions and keeping the government out of them (wherever possible).
You are naive. Without government "violence" , "theft" and "coercion", there is nothing stopping someone bigger and stronger using violence, theft and coercion to take all of your stuff. And no, you cannot defend yourself, since you're not the most powerful person. There will always be someone bigger and stronger.
Re:The Problem (Score:4, Insightful)
News flash - dollars, euros, and yuan also have no intrinsic value beyond the heat you can generate burning them. Even gold has very limited inherent value - there's not all that much it's good for except anti-corrosive coatings and decoration, and decoration is strictly a luxury good whose value is heavily dependent upon the surpluses of the surrounding economy and the alternative luxury good available.
Currency is by its very nature an arbitrary construct who's only value is what people agree to. Wampum was a common standard of exchange in parts of the US for centuries, possibly millenia - but just try to buy something with it today. Bitcoin is shaky because it's still just getting established, and thus much of its value comes from speculation. Give it a century to get established and its value will be determined primarily by the volume of the economy using it for transactions, and thus be far less volatile. Of course that presumes it doesn't collapse first, which is also an option, and is one of the factors making speculation so appealing now - risk = potential for profit.
Bitcoin, like other currencies, is an economic tool. One with strengths and weaknesses very different from most anything else that's ever seen such a level of adoption - and that imparts a certain inherent value which will scale as the value it imparts to the economy changes. Contrast that with Beanie Babies, which are amusingly shaped bags of pellets whose inherent value is limited to amusing children, or tulip bulbs before them, whose only inherent value is being able to grow a pretty flower. Doesn't stop people from speculating in them - a certain percentage of humans *love* to gamble, but if the inherent value can't possibly scale to match the price then you are in a bubble, pure and simple.
Andreessen's valuation of bitcoin as a currency (Score:3, Insightful)
Andreessen's valuation of bitcoin doesn't rest solely on bitcoin's value as a currency. From the DealB%k article:
"...Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user...What kinds of digital property might be transferred in this way? Think about digital signatures, digital contracts, digital keys (to physical locks, or to online lockers), digital ownership of physical assets such as cars and houses, digital stocks and bonds and digital money."
So it looks to me like he believes the technology underlying bitcoin as a currency can be leveraged to enable all kinds of transactions - not just purchases of goods and services.
While I tend to agree with the points made by Glenn Fleishman where he challenges bitcoin's utility as a currency, I think Andreessen's broader vision of the utility of bitcoin still stands.
Re:Beware of "We" (Score:3, Insightful)
If you're living paycheck-to-paycheck, you don't have any currency stored!
If you're claiming that your money is getting significantly devalued in the two weeks it sits in your checking account, in the current low inflation economic environment, then please, start taking your meds again.
I don't think so, Marc... (Score:4, Insightful)
So Marc's article is basically cheerleading Bitcoin. I understand that; he's decided it is the future and has tens of millions invested in making it so. Glenn's critique takes issue with Marc's analogies of Bitcoin to the PC and Internet -- whether those analogies are correct or not seems irrelevant to the main issue: is Bitcoin "the answer".
After reading these, two things make me think Bitcoin won't ever be huge:
1. The assertions about no charge or low charges for transactions. Glenn's seems correct when he says this can't continue. Right now, people justify their computing expenses "keeping the books" by mining, but that will end as we approach the end of bitcoins in the mine. For them to continue providing their service, they have to get some value, and that will come from fees. (Did you see what people are paying to set up powerful enough computers these days? http://dealbook.nytimes.com/20... [nytimes.com] ) So the nirvana of incredibly low transactions fees vanishes (sale ends soon so act fast -- supplies are limited!)
2. The assertion that the network is safe from attack or manipulation. Right now, bitcoin is too small so no one cares. But when governments start caring, does anyone really believe that the NSA will not throw its resources at this problem if needed? Most stories (including these) quote how it's virtually impossible to have enough computing power to destabilize the network. I've heard these claims before -- in the 1980s, the US government would allow us to export software with a 40 bit salt on our pathetic 32 bit encryption because it was "too secure and endangered national security". Yeah, right. Every single claim has been true for a while -- until it wasn't. Everything is eventually cracked. I'm not sure I'm willing to turn over all my assets to the cloud, and I don't think most people will, either. So bitcoin may be a bit player, but I don't expect it to rise to the levels Marc projects.
Just like drugs (Score:4, Insightful)
Because it can't be used universally.
Nor will it ever be free from regional or political constraint.
The same is true of drugs, which is why it's so hard to buy drugs except for the few countries that legalize them.
Oh wait.
Accounting for all the costs (Score:2, Insightful)
1) BitCoin has very small per-transaction fees. There are a whopping-big number of credit card transactions each day, each with fees of about 5%. Bitcoin will eliminate most of these, for a whopping-big cost savings.
Bitcoin has small transaction fees because it has very low transaction volume, little infrastructure and most transactions are directly between parties who are relatively technically sophisticated. All of that will have to change and will cost more if bitcoin becomes popular. Furthermore EVERY other cost to using bitcoin is higher than with widely traded fiat currencies. It is riskier, more volatile, less liquid and if you think those things don't have costs you need to study your accounting. Bitcoin transaction fees are low because they have to be, not because bitcoin has a cost advantage.
2) BitCoin increases the market to people who don't have a bank account. That essentially doubles the potential customer base.
Exactly how is a currency that virtually no one accepts going to help someone who is struggling to the point the can't get a bank account?
3) BitCoin allows for micro-payments. This increases the number and type of sales possible.
Bitcoin may help with micro-payments but it is far from clear that it has a cost advantage in doing so. Micropayments are a problem because of the cost of transactional overhead which isn't simply a fee from the bank. Bitcoin does not make this overhead go away.
4) BitCoin almost eliminates counter-party risk.
Bullshit it does. It merely transfers much of the risk to the buyer who has less recourse in the event of a dispute. Not having a neutral authority in the transaction is a two edged sword. It might reduce transaction costs but it increases the risk and thus the costs.
BitCoin will bring enormous cost savings, and that's why people will use it.,
No it will not. I'm an accountant and I assure you that you are not accounting for all the costs of using bitcoin. You have not addressed exchange rate volatility, middle man fees, transactional infrastructure overhead, liquidity, security costs, and several others besides. If you want to make an argument that bitcoin has a cost advantage you have to address ALL the costs, not just transaction fees.