Bitcoin and Modern Money Theory

Happy Presidents’ Day, Idiots!

I was going to skip the Bit today as it’s a bank holiday, but then I remembered: Bitcoin doesn’t operate on a banking schedule.

I’ve spent the long weekend reading up on Modern Money Theory (riveting, I know), and I’m trying to see where Bitcoin fits into the whole thing. I have a bunch of ideas that I’m still trying to organize.

The short summary of MMT, though, is that it stipulates all money must be issued from a sovereign nation and that it must be debt. Logically, all money must be some form of government debt.

Yet that doesn’t necessarily mean that citizens within a certain nation only use that nation’s money in commerce. In fact, it is true that dollars and euros continue to be widely held and valued reserve currencies globally. And there are instances (like the Euro), where the monetary supply is managed independently of the governments of its participating nations. So it’s an interesting question as to whether Bitcoin can ever be treated like a currency under MMT. It isn’t debt, and it isn’t issued from a sovereignty. Yet it does act like a global reserve.

This is what makes bitcoin so special to libertarians and crypto-anarchists. For those who wish to neuter the state when it comes to monetary policy, Bitcoin is a silver bullet. Take away a government’s absolute power over the money supply and suddenly you remove a large chunk of its power. You might even force its leaders to make more responsible choices. (But probably not.)

Under MMT, the ultimate reason that money exists is to allow sovereignties to collect taxes in their currency. The power to tax requires that citizens hold at least as much of the domestic currency as they need to pay their taxes. In reality, the currency units in circulation tend to eclipse that which is needed to pay taxes for the simple reason that many people, businesses and governments will want to hold reserves, whether for commerce (if the currency is widely accepted as legal tender), or centralized savings (for investment purposes, such as Chinese investments in interest-bearing US Treasuries).

In that respect, Bitcoin is a huge threat to nation’s who enjoy “reserve currency” status, such as the US. People might always have to pay their taxes in dollars, but if Bitcoin starts to emerge as an alternative international reserve currency, it starts to limit the power of reserve currency nations to print more money. (If demand drops for dollars, the US will have a serious inflation problem as the Treasury prints more money.) So the Bitcoin protocol starts to act like a global central bank with bitcoin as its currency, not unlike what the IMF proposed recently with SDRs, or what Keynes himself proposed in the 1940’s with his conceptual supranational currency, bancor.

Fascinating stuff, and I’m still trying to wrap my head around it as a relative idiot and non-academic. Would love to hear your feedback and questions if you want to learn more, or, better yet, if you are able to teach me more.

*Sloppy report coming out of MIT, in which the researchers claim that Bitcoin is increasingly being spent rather than hoarded. The authors looked at newly mined coins and reviewed how long it took them to be sent from their initial address to a new address. It was grossly inaccurate to characterize those flows as “spending” given that most of the transactions are simple transfers from mining pool wallets to personal wallets. It should have been a red flag to notice only 2-3% of bitcoins were held for longer than a week in 2012 and 2013, according to the researchers.

All of that said, the report did inadvertently uncover some other interesting data: how much bitcoin has remained “unspent”. I’m guessing that a sizable percentage of those “unspent” coins are lost forever. That’s my new lower bound for “dead wallets”.

*I’ve seen really smart people betting bitcoin skeptics such as Mark Williams that “bitcoin will never fall below [x].” They better hope he doesn’t accept such an easy bet.

I’m a bitcoin believer and I’d still take that bet all day long. That’s how bad it is. I’d simply buy the same amount of bitcoin that I was betting against to essentially get a free option on bitcoin’s upside. Many of us believe Bitcoin will either be $100k or near $0 some day. So if I win the bet (bitcoin is worthless), I’d recoup my initial bitcoin investment with my gambling wins. If I lose the bet (bitcoin goes to the moon), I essentially pay my principal to settle up, and still sit on an asset that has appreciated 50-100x or more. The flip side means you’ve got to put money at risk that would have been better off invested in more bitcoin.

Moral of the story: don’t let trolls bait you into making bets you can’t win. It’s foolish.

Now for Today’s Tid Bits:

ICYMI: My latest post this weekend was an awesome, candid interview with Roger Ver

ow.ly/tHJqH

Much problem. So serious. Wow. (Dogecoin has forked.)

ow.ly/tHJe6

Bitstamp resumes withdrawals - with less downtime than the NYSE over President’s Day weekend.

http://ow.ly/tHJPW

Bitcoin: it’s the platform, not the currency, stupid! Long, but good article.

http://ow.ly/tHKgX

BitPay Unveils Bitcore, its Open-Source Project for App Developers

http://ow.ly/tHKoT

The Mysterious Case of 1 Satoshi Transactions Clogging Up Bitcoin Wallets - The Mac Observer

http://ow.ly/tHLoJ

Bitcoin Woman Magazine and its resources could be hugely beneficial to the community

http://ow.ly/tHLyu

Enjoy the day off (if you have it). Otherwise, happy Monday!

Cheers,

TBI

February 18, 2014 at 01:16AM

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CoinTerra to Release GSX I Water-Cooled PCIe Bitcoin Mining Card

Austin, Texas-based CoinTerra has announced its second product.

Called the GSX I, the card form factor bitcoin miner uses water for cooling, and notably, has a radiator serving as a heat exchange for the water, piping it over the board. The GSX I is a 400 GH/s unit that has a 28nm chip.

Jim O’Connor, vice president of engineering for CoinTerra, spoke to CoinDesk about the upcoming launch, and said he believes using water is the best method of cooling for a card.

Continue reading at CoinDesk

February 18, 2014 at 01:21AM

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First Bitcoin meetup in Ecuador a big success

About 30 people attended the first-ever Bitcoin meetup in Quito, Ecuador on Thursday, February 6th. The meetup was organized by Dutch alternative money promoter Paul Buitink (@paulbuitink), currently residing in Quito, and American IT entrepreneur Justin Leitgeb (@justinleitgeb), who made available the Quito office of his company, Stack Builders, who specialises in Ruby and Haskell software development. Argentinean Diego Gutierrez Zaldivar, who organized the Buenos Aires conference in December of last year and who coordinates Bitcoin initiatives in South America, also helped with organization.

Turnout was bigger than expected given that the meetup was only promoted in the Bitcoin Ecuador Facebook group and on meetup.com. In fact, three people flew in from Guayaquil to attend the event.

What was really exciting was the passion and the technical and theoretical knowledge the attendees demonstrated. It became clear once more that South America needs to modernize its money system.

Compared to people of countries like Venezuela and Argentina, the citizens of Ecuador may have felt blessed under the wings of the greenback. Nonetheless, the meetup made it clear that there are many Ecuadorians who feel passionately about modernizing the monetary system. Online commerce hardly takes place in Ecuador and, like in other Latin American countries, a lot of transactions are still cash based.

In the short term, the Bitcoin community plans to focus on basic infrastructure and community building. The Bitcoin meetup will continue to be hosted in Quito every month and there are plans to form groups in other large cities, including Guayaquil and Cuenca. Directly following the meeting, a forum was established at bitcoinecuador.info to efficiently exchange ideas and opinions. Monday, February 10th, the first so-called “Satoshi Square” has been organized to make in-person exchanges possible, which is still challenging in a country like Ecuador. On sites like localbitcoins.com and mercadolibre.com.ec, there is hardly liquidity.

In the medium-term, forum sessions and conferences will be organized to educate the academic world and enlighten politicians and officials. In the long-run, exchanges, merchant services and the like will have to be developed. Open source enthusiasts who were catalysts in the Ecuadorian government’s embracement of open standards have already expressed their interest in helping to foster crypto currency growth in the Andean nation.

Ecuador, a small country with slightly less than 16 million inhabitants, has been dollarized since 2000, against the will of many politicians and economists. Compared to the previous currency, the SUCRE, this move has brought relative stability – especially compared with other Latin countries. Still, cryptocurrencies could potentially cater for even more economic growth. By allowing cryptocurrencies to flourish in Ecuador and by not burdening them with too much regulation, Ecuador could well become a safe haven for the Bitcoin community to explore and build crypto solutions. As Ecuador doesn’t print its own currency, less resistance should be expected from the central bank of Ecuador. The government is said to be working on its own currency, and should they consider to throw cryptocurrencies in the mix, it could set Ecuador apart from other countries.

Furthermore, in 2009 the government implemented a regional compensation system with the members of the Allianza Bolivariana para las Américas (ALBA), that is Venezuela, Cuba, Antigua y Barbuda, Bolivia, Dominica, Nicaragua, San Vicente y las Granadinas and Uruguay. This system, called Sistema Unitario de Compensación Regional (SUCRE), intends to replace the dollar and ultimately behave like a currency. For the moment it’s used as a way to settle debts between exporting companies of the member states through the use of a central clearing bank that behaves similar to the European Central Bank (ECB) . While the reasoning behind the SUCRE system of trying to diversify away from the dollar for regional trade is clear, allowing people to use a globally accepted, politically neutral currency like the Bitcoin makes even more sense.

With the enthusiasm and skills of the current Ecuadorian Bitcoin community and the interesting economic and political conditions in the country, the crypto future for this small Andean country could be as beautiful as its old colonial center.

The post First Bitcoin meetup in Ecuador a big success appeared first on Bitcoin Magazine.

February 17, 2014 at 11:14PM

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Ukraine to Regulate Bitcoin Businesses Under Existing Laws

In response to queries from Ukraine-based news source AIN.UA, the National Bank of Ukraine (NBU) has issued its first formal legal guidance to its native bitcoin community.

Most notably, the NBU has indicated that bitcoin payment systems and payment infrastructure services must register with the agency and abide by existing laws related to the management of electronic money.

The announcement positions Ukraine closer to the European Union than Russia on matters of virtual currency regulation, even as Russia has moved to solidify its influence over the former USSR member state on the national stage.

Continue reading at CoinDesk

February 17, 2014 at 08:12PM

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Conan O'Brien tweets

Wow. Strippers get angry if you make it rain Bitcoins.

— Conan O’Brien (@ConanOBrien)

February 17, 2014

February 17, 2014 at 05:12PM

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ATM Pioneer Plans Machines for Singapore, London

The company behind the world’s first bitcoin ATM is planning to set up machines in London and Singapore by mid-March.

Vancouver-based Bitcoiniacs, said the new machines are part of a global expansion that will also include setting up physical brokerage offices for retail customers and a push to increase use of its own bitcoin exchange.

Bitcoiniacs founder Mitchell Demeter said the ATMs would likely be located inside a cafe or coffee shop, with a brokerage office attached. This would be similar to its current set-up in Vancouver, where the ATM is located in Waves Coffee House.

Continue reading at CoinDesk

February 17, 2014 at 07:03PM

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Bay Area’s Leading Poverty-Fighters Recently Accepted Their First Bitcoin

The Bay Area’s leading poverty-fighting organization recently accepted its first Bitcoin donation. Bart and Brad Stephens of Stephens Investment Management donated 20 bitcoins to Tipping Point Community on February 6.

“Bitcoin is a disruptive innovation in the field of financial technology,” Bart Stephens said. “Tipping Point is an innovator and a disruptive force in philanthropy. We have supported Tipping Point since its inception and we are excited by this pioneering gift. Both Tipping Point and Bitcoin share a bright future, bringing benefits to consumers and families in need alike.”

Tipping Point Community helps donors find, fund and partner with the Bay Area’s most effective organizations serving individuals and families. Because Tipping Point’s board underwrites all operating and fundraising expenses, 100% of every dollar donated goes directly toward the fight against poverty. Since 2005, Tipping Point has raised more than $60 million and has reached nearly 250,000 people in need.

“Tipping Point and our donors are always seeking new ways to improve our community,” said Daniel Lurie, CEO and Founder of Tipping Point. “Bitcoin is still in its early days, but we are excited at the prospect of it as an additional resource in the fight against poverty.”

Stephens Investment Management is a boutique investment firm managing a family of financial products including hedge funds, sector-focused venture funds, an income fund, a real estate fund, a fund-of-funds, and private company direct investments.

If you would like to donate to Tipping Point and join the fight against poverty in the Bay Area, please contact Sophie Jaggi at sjaggi@tippingpoint.org.

The post Bay Area’s Leading Poverty-Fighters Recently Accepted Their First Bitcoin appeared first on Bitcoin Magazine.

February 17, 2014 at 05:41PM

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Can a Wearable Bitcoin Wallet Bring Cryptocurrency Into Meatspace?

Paying in Bitcoin already offers tons of advantages over credit cards. It’s by-default more secure, and on the internet at least, faster and easier. However, paying with bitcoin IRL has until now been pretty clunky, generally involving scanning multiple QR codes, signing and approving. All that may change, however, with the introduction of technology aimed at simplifying paying with Bitcoin at the point of sale. BIPS has made this possible by using the Samsung Galaxy Gear Watch.

The Samsung Galaxy Gear is an Android-based smartwatch that with a few tweaks is able to run just about any Play Store app, including Mycelium Bitcoin Wallet. With it, users can buy items in a store or share a dinner bill with a friend in Bitcoin with a tap of their watches. Perhaps most interestingly, it allows users to keep their private keys on a native hardware wallet, off and away from online wallets.

The most challenging aspects of accepting Bitcoin for brick-and-mortar retail businesses are clunkiness and differentiating each customer from the previous customers.

The watch is connected to the internet via Bluetooth phone tether. It is the first wearable Bitcoin wallet, taking what has previously been the realm of fitness and applying it to payments. Users can scan QR codes, make secure payments and even use Chirp to send payments via sound waves.

One aspect that is great for customers, but maybe not as great for merchants, is the fact that BIPS does not actually collect any customer information, only merchant information.

“The more information we collect the more prone we are to attacks and risking people’s personal data being leaked,” said Kris Henriksen, a media representative for BIPS. “Hence we have chosen not to collect merchants’ customer data as it is irrelevant to our services. And as such we do not need to replace the customer data credit cards provide.”

However, merchants find the customer data that credit card purchases provide extremely valuable. To make up for this deficit, whose value is undoubtedly overshadowed by the increased security of Bitcoin payments, merchants can take further advantage of customer loyalty programs.

Innovations in point of sale will make taking and offering Bitcoin as payment safer, easier and more efficient. Having more choices in how to pay is undoubtedly better, though it’s yet to be determined how long credit cards will remain the default mode of payment.

The post Can a Wearable Bitcoin Wallet Bring Cryptocurrency Into Meatspace? appeared first on Bitcoin Magazine.

February 17, 2014 at 05:38PM

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Mt. Gox: Bitcoin Withdrawals Will Resume Soon

Mt. Gox has issued an official statement saying it has found a workaround for its bitcoin transaction malleability problems, which will see bitcoin withdrawals resume “soon”. This comes after the team worked over the weekend to begin implementation of a new transaction system.

It said the workaround was “thanks to our friends at Blockchain.info“. As expected, when withdrawals recommence they will do so “at a moderated pace and with new daily/monthly limits in place” to prevent a run that could put too much strain on the company’s resources.

The statement said:

Continue reading at CoinDesk

February 17, 2014 at 11:34AM

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Mt. Gox Impact Diminishes as Market Price Dissociates

The last week has been a tumultuous period for digital currency markets, driving prices on the industry’s oldest exchange into a tailspin. While volatility is nothing new for bitcoin, a drastic divergence from historic norms has arisen: Mt. Gox has largely dissociated from the rest of the market, offering insight into the market’s perception of risk in dealing with the company. Since Mt. Gox suspended fiat withdrawals last summer the market has come to terms with the 10%+ premium paid for bitcoin on that exchange relative to others. Customers being unable to withdraw fiat drove a technical bid for bitcoin, since withdrawing bitcoin was the only way to get money out of the exchange for most people over the last seven months. Last week the company also suspended bitcoin withdrawals, pointing to underlying protocol issues as the driver for the issue. The result has been not only the immediate disintegration of the cross-exchange spread, but also a quantifiable dissociation with the rest of the market. Fears that transaction malleability led...

The post Mt. Gox Impact Diminishes as Market Price Dissociates appeared first on The Genesis Block.

February 17, 2014 at 11:05AM

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South Korean Exchange Coinplug Launches Country’s First Bitcoin Apps

Coinplug, the South Korean bitcoin exchange and merchant software developer, has released three apps for Android devices that include a bitcoin wallet, a trading app, and a POS system for merchants. They are the first mobile bitcoin apps available in Korean.

The company’s website also now features a map to find merchants accepting bitcoin and using its POS software. Maps will be updated daily to include any new businesses, which Coinplug also supplies with Korean-language ‘bitcoin accepted here’ window signs.

Continue reading at CoinDesk

February 17, 2014 at 10:20AM

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Wedbush Securities Signs on with Coinbase

Wedbush Securities Signs on with Coinbase:

coinbase:

Another day, another innovative use case for Bitcoin. We’re happy to announce that we’ve just partnered with Wedbush Securities, one of the nation’s leading financial services providers, to help them become the first U.S. institutional brokerage to accept bitcoin as payment for its research…

Coinbase is doing a great job.



I have added Coinbase to my page with links about Bitcoin.

February 16, 2014 at 12:07PM

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