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Comment by lingben | Hacker News Reader

The number #1 requirement for a currency is trust and confidence in it. Why would anyone trust a currency which has no consumer protection whatsoever and provides zero recourse for when things inevitably go wrong?

What I mean is, everyone is hating on Mt. Gox but conceivably what happened to them can happen to any of the exchanges out there now. There is no mechanism to prevent it and there is no recourse for users when it does.

This is why bitcoin is interesting as a protocol but a non-starter when it comes to being a true currency. A currency requires backing by a central authority. No amount of code can make up for that.

EDIT: I would also like to add one simple thing. Here we are discussing a topic that falls into the field of economics. How many here are economists?

ok. How many here have taken at least a few courses in economics?

ok. How many here have taken 1 course in economics?

If a slew of people with zero knowledge of programming, computers, technology, etc. decided one day to start pontificating incessantly about code, programming languages, etc. hn would first sneer at them and then rightly ignore them.

But if people with zero knowledge of economics or finance write a torrent of vapid and completely ignorant articles about currency, bitcoin, macro-economics and their intersection hn seems to vote it up.

I'm really tired of this. I do get that the bitcoin protocol has some interesting aspects. But can we please ignore the total waste of space, time and pixels that is every single article about the bitcoin currency?

View on HN

Why is it a currency's job to provide consumer protection? That's like saying that it's a kitchen stove's job to tell you what things you can cook with it, or that it's TCP's job to provide built-in encryption and authentication. It's not; it's the job of third-party services built on top. Systems are better when they're modular and distinct components are not arbitrarily bunched together, allowing separate innovation in each one. And the Bitcoin community is developing such third-party services as well; I know of at least three Bitcoin businesses working on providing arbitration services and secure Bitcoin wallets using multisignature transactions.

"Why is it a currency's job to provide consumer protection?"

I think you are misunderstanding what I'm saying. It isn't the currency's "job". It is a fundamental prerequisite that the currency have a backer for said currency to be used widely.

The mistake that people make with bitcoin is to put the cart before the horse. That is, they think that achieving critical mass [1] means that a currency has 'succeeded'.

In fact, you first need to provide a reason for people to trust the currency (central authority) which then leads to critical mass... and then 'success'.

The essence of bitcoin is ephemeral with no control, no central authority and no recourse. This stuff is built in. Unlike our current 'old style' currencies, bitcoin prides itself on standing apart this way.

When a currency is built in such a way that it EXPLICITLY removes the ability to have such necessary characteristics of a currency, you better believe it matters.

[1] http://en.wikipedia.org/wiki/Critical_mass_%28sociodynamics%...

> It is a fundamental prerequisite that the currency have a backer for said currency to be used widely.

Yes, that's a prerequisite for a currency to function as it should, but I think you're suggesting that Bitcoin differs from paper money in that regard.

It happens that people trust paper money, but this isn't because paper money has some kind of innate authority beyond public faith and trust. If a particular government chose to manipulate the currency they could destroy it, either quickly or slowly.

> The essence of bitcoin is ephemeral with no control, no central authority and no recourse.

I think you're exaggerating the role of "central authority".

http://w3.newsmax.com/newsletters/uwr/images/transcript-img1...

To me, the only difference between Bitcoin and paper money is public familiarity.

> It is a fundamental prerequisite that the currency have a backer for said currency to be used widely.

Why? Does it hold true after Bitcoin (rhetorical, we don't know yet)?

Certainly before the invention of Bitcoin and the ability to reach consensus in distributed systems, powerful/rich central authorities trigger initial trust and adoption. Hence you can see why previous digital currencies have been none-starters.

That you must first have "trust" and then comes a critical mass works for bitcoin, the currency, just fine, imo. I would say in fact that the initial seed has already been planted back in 2011 and we are seeing the growth now. Allow me to just regurgitate some things I know of bitcoin that give it some value/trust/seed for adoption:

    - completely distributed, no middle-men (and their fees and risks and inefficiencies) except the 51% miners. This is the "reach consensus in distributed systems" which fixes double spending which is arguably the only real innovation of Bitcoin (of course there is more to the story, but this is the real new thing)
    - used to be the main way to buy illegal drugs safely and conveniently in the U.S.
    - great way to avoid paying taxes (WARNING: probably illegal where you live!)
    - great way to do other illegal things online involving money (aka free trade, freedom of speech) 
    - _exceptional_ utility in transporting wealth
    - _exceptional_ utility in transferring wealth (to someone else). i.e. medium of exchange
    - _exceptional_ utility in being able to secure
    - _exceptional_ unit of account because of specific measure, fungible, and divisible
    - known supply and predictable production rate (automatic, built-in, preset control)
    - deflationary (can't argue it's good for bootstrapping)
    - impossible to counterfeit

Some drawbacks:

    - bad measure of value because of exchange volatility
    - philosophical underpinnings or effects of being anti-state (see above pros) which also may have the effect of losing control of money creation and debt financing?
    - deflationary and built-in control of supply (This is interesting. As I understand it from talking with a couple economists, the "infinite" divisibility may assuage traditional deflationary woes. Though they still generally have a feeling this is a con.)
    - very infant, much risk
    - will debt be possible, practical to build on top?

And sure, feel free to swap one or two pros/cons if you have reason.

Is there anything in bitcoin's (the "currency") growth to suggest it _won't_ reach a tipping point? I ask because from my perspective it's adoption is ever growing, never stagnant.

Maybe we are actually mostly on the same page? I couldn't be sure but replied anyway. Did I miss this point:

>such necessary characteristics of a currency

I guess we disagree on the definition of a currency then. You are treating currencies like consumer products. Currencies are stores of value that people have to rely on for our market based economy to work on. The dollar is backed by the full faith and credit of the United States government. Bitcoin is backed by the full faith and credit of... satoshi nakamoto? If the dollar wasn't backed by the US government with strong regulations then I wouldn't use it to store my value and target wouldn't accept it. It is unethical to distribute a currency without insurances/regulations controlling it. You are messing with people's life savings and livelihood, its irresponsible to not protect consumers. Furthermore, with your stove example, there are certain regulations that the stove has to meet to be sold. http://www.wsiltv.com/news/local/EPA-Proposes-New-Regulation... This is done to protect consumers and society. You may say its people own faults for not doing proper risk assessment, but not everyone is educated and smart enough to understand this stuff. If you want true mass adoption of bitcoin then it will need regulation and consumer protection.

> The dollar is backed by the full faith and credit of the United States government.

It's more accurate to say that the dollar is backed by public familiarity, faith and trust. Some of that trust is in the government backing the currency, but if that were not true, if the government wasn't involved, it's interesting to ask how much of paper money's role and legitimacy could be supported only by public faith and trust in the currency and its connection with the economy. Assuming, that is, that the number of dollars in circulation could somehow be regulated without governmental control (a problem that the Bitcoin system addresses).

well in my opinion, central banking is vital in my trust of a currency as well. But others may disagree. Otherwise, you're just dealing with gold, which is a regression.

> well in my opinion, central banking is vital in my trust of a currency as well.

To each his own. Some think a central authority improves the reliability of a currency, some think the opposite. Let's ask Weimar-era Germans what they think:

http://c3445010.r10.cf0.rackcdn.com/landscape_image/5759/big...

(Humorously, the sign in the back -- "Rauchen Verboten" -- means "No Smoking". No sense burning up people's pocket money.)

> Otherwise, you're just dealing with gold, which is a regression.

You just posed a false choice. There are choices besides central authority and gold coins. Any currency in which people have faith and trust can be a legitimate currency on that basis alone. Of course, any currency must earn trust, and Bitcoin is nowhere near earning the public's trust.

> You just posed a false choice. There are choices besides central authority and gold coins. Any currency in which people have faith and trust can be a legitimate currency on that basis alone. Of course, any currency must earn trust, and Bitcoin is nowhere near earning the public's trust.

My point was its equivalent to gold in the fact that it has no central authority controlling the supply.

>Let's ask Weimar-era Germans what they think

Oh yes, it had nothing to do with the massive amounts of money they were forced to pay in reparations and the rebuilding they had to do. By the way, no one ever said there wasn't a bad way to central bank. My argument is for good central banking, as Bernanke has done. Not the type of shit that Alan Greenspan did. (or the weimar republic). Just like I endorse democracy, but there are plenty of failed democracies. I could just as easily turn your weimar point back at you and say the great depression was because of the gold standard. Because we happened to have a gold standard at the same time. If we had central banking at that point, it could have mitigated a lot of the damage.

The USD doesn't provide these protections either.

Customers will flock to the first exchange that implements cryptographic proof of ownership.

Where is your evidence that a current requires backing by a central authority. Gold has often functioned as a true currency without a central authority. We moved away from gold because it's not as easy to carry or divide as cash. Bitcoin has all of the desirable properties of gold and the desirable properties of cash.

"A currency requires backing by a central authority."

Citation needed.

citation: see bitcoin

/snark

But seriously, it is difficult to not approach the question with sarcasm as it is so self-evident. Put yourself in the shoes of one of the hundreds of people who lost their bitcoins via the Mt. Gox fiasco and ponder your own question anew.

Calling it a requirement and then saying it is self-evident because it's something you require and imagine other people do as well doesn't actually make it a requirement.

A lot of people are perfectly comfortable with some amount of risk, and those people use bitcoin. It's not like legal tender is going anywhere, despite what some dreamers may say.

Disclaimer: I own zero bitcoins.

I fail to see how this is any different than people putting money into bank 1000 years ago and a bank robbery destroy their wealth. Isn't that a perfectly accurate description of what happens when an exchange gets hacked? Isn't that more or less what happens when a bank makes bad investments and loses your money, so that when everyone attempts to withdraw at once (bank run), the bank collapses [assuming no "FDIC"]?

As far as I'm concerned, the biggest problem isn't "regulation" or "central authority" or "is bitcoin currency?" it is "who takes the loss when sh*t hits the fan?"

In the bitcoin world, the winner is YOU.

It is pretty obvious from the preceding sentences that this is an opinion, not a statement of fact, and hence a citation is not needed.

> It is pretty obvious from the preceding sentences that this is an opinion ...

No, it was stated as though it were a fact that a currency requires the backing of a central authority. It's a testable proposition, and the fact that Bitcoin exists and functions as a currency, and the fact that the present Fed chairperson asserts that the government has no authority to regulate Bitcoin, is the needed counter-citation.

Link:http://www.theguardian.com/business/2014/feb/27/janet-yellen...

Quote: "The Federal Reserve has no authority to supervise or regulate Bitcoin, chair Janet Yellen told Congress on Thursday."

So the original claim is false.

Gold was currency. Silver was currency. No central authority was required to back them.

Your conclusions may be correct, but your argument is rubbish.

The gold and silver standards were established by central authorities. Where do you think they came from?

Give me one example where seigniorage preceded raw metal.

Raw metal precedes the human race, but its use as currency was generally tied to a government's decision to collect taxes in it.

I did some quick research. Nothing definitive, but that's not what my research suggests.

TL;DR Gold-as-currency first used in Egypt 4,000 BCE; Egypt implements a commodity-tax somewhere between 3,500 - 20 BCE; Coinage first cited between in Lydia 700 - 550 BCE.

Could you give me an example, like I originally asked?

http://en.wikipedia.org/wiki/History_of_money#Early_usage

> It has long been assumed that metals, where available, were favored for use as proto-money over such commodities as cattle, cowry shells, or salt, because metals are at once durable, portable, and easily divisible.[45] The use of gold as proto-money has been traced back to the fourth millennium BC when the Egyptians used gold bars of a set weight as a medium of exchange,[citation needed] as had been done earlier in Mesopotamia with silver bars.[citation needed]

http://en.wikipedia.org/wiki/Lydia

> According to Herodotus, the Lydians were the first people to use gold and silver coins and the first to establish retail shops in permanent locations.[12] ...

> The dating of these first stamped coins is one of the most frequently debated topics of ancient numismatics,[14] with dates ranging from 700 BC to 550 BC, but the most common opinion is that they were minted at or near the beginning of the reign of King Alyattes (sometimes referred to incorrectly as Alyattes II), who ruled Lydia c. 610-550 BC.[15] ...

http://simple.wikipedia.org/wiki/Ancient_Egypt#Early_history

> Ancient Egypt, or the Egyptian Empire, was a society that began about 3500 BC and lasted until 20 BC when it was invaded by the Roman Empire.

> Ancient Egypt had a lot of different taxes, but there was no real money, so people paid each other with goods or work. The person who watched the tax collection was a scribe, and every tax collector in Egypt had to tell him every day how many taxes they had collected. Each person paid different taxes based on the work that they did: craftsmen paid in goods, hunters and fishermen paid with food, and every single household in the country had to pay a labour tax every year by helping with work for the country like mining or for canals. A lot of rich Egyptians paid poorer people to do this for them.

Fair enough. I guess "citation needed" passages from Wikipedia about "proto-money" in ancient Egyptian bartering are totally equivalent to the gold standard.

1. My citations are sketchy. Can you do better? 3rd time I've asked.

2. Does the article call the gold bars "proto-money"? Sure, but now we're just bickering over definitions. The same article says the Egyptians used gold bars as a medium of exchange, which I believe exactly fits what we've been discussing. If you define "currency" to mean something other than a "medium of exchange", then what is the distinction and how is it relevant to Bitcoin?

3. And this brings us back to the original point of contention ITT: Why do you believe a a successful currency (or successful medium of exchange) requires a centralized "standard" despite historical evidence of decentralized "commodity money"?

I'll concede that at many points in human history people used precious metals as currency without the involvement of a government, but for centuries--since the Roman Empire, to name one example--currencies have been established largely through government fiat even when based on some commodity. ("Render unto Caesar that which is Caesar's").

The "gold standard", in the US, was established by federal law in 1900, replacing bimetallism, the previous basis. Respectfully, I don't see how the use of precious metals in Ancient Egypt is relevant to the role of currency in a post-industrial world.

> in a post-industrial world.

It appears our disagreement lies in "post-industrial". My first thought was "I don't see how the use of precious metals in Ancient Egypt is any different from the role of currency in a post-industrial world." Now, asserting our myopia leaves us nowhere. But as long as this thread is already, I'd like to dig deeper.

Given the Mt. Gox debacle, I'm assuming your line of reasoning is related to trust. E.g. "the purely electronic form of bitcoin allows it to be stolen on a scale not feasible with more tangible forms of money." But then, do banks prevent the laundering of USD electronically? Or perhaps "who will insure against theft if not the government?" But then, who insured against theft prior to Hamilton's creation of the U.S. National Bank?

But at this point, I'm fully immersed in strawman land.

That's because this entire thread has been a chain of irrelevant derailments and strawman attacks on your end.

The reason I knowingly offered strawmen citations was to provide a prototype of the response I was looking for. Responses like "but its use as currency was generally..." didn't really fit the bill. Nor did "I don't see how [so and so]".

Ideally, I wanted to understand your reasoning. I still haven't gotten very far. Consider that if I can't decipher why you disagree and I'm not permitted to construct hypotheticals (strawmen) as to why you disagree, that leaves me with either assuming you're automatically wrong or not thinking critically at all.

Derailment? I don't think that's fair. Until now, I've been pursuing the same question this entire thread (why you disagree with top post).

> The gold and silver standards were established by central authorities.

No, this is false. Gold and silver had innate value long before anyone "in authority" declared this to be so. In fact, central authorities eventually recognized the value of gold and silver, they didn't declare it or bring it into being.

The really remarkable event, that cements the role of modern government in economic matters, was the relatively recent unlinking of paper money from the backing of gold and/or silver. This step was taken for a number of excellent reasons, but it was predicated on the idea that the public will have faith in the stability of the economy, not on the innate representational value of paper money.

So the 19th century political controversies about switching from a silver standard to a gold standard never happened?

Currencies have existed since the neolithic revolution?

Something like that happened -- in the 20th century, not the 19th. And the outcome was that the public accepted the unlinking of paper money from a specific standard of value.

1896 was still technically in the 19th century. http://en.m.wikipedia.org/wiki/Cross_of_Gold_speech

Nevertheless, the public accepted the delinking of currency from precious metals, and modern economies would collapse if this were not true (too much economic value to be represented by existing stocks of precious metals).

Of course they did, I don't know why you think I'm arguing with you on that point.

The gold and silver standards BACKING CURRENCIES were established by central authorities. Meaning, you could convert your USD into an equivalent value of gold. Guaranteed by the US government. And the US government kept an equivalent stockpile of gold in vaults, to reassure everyone that their USD was as good as gold.

Then the USD was decoupled from everything.

Far before any of that, people actually used gold and silver coins and pieces of coins as currency.

Commodities have intrinsic value. A fiat currency such as bitcoin lacks that intrinsic value and is valued based on consensus. In the case of a government-backed currency, there's at least some value based on that government's ability to mandate its use for taxes. Governments can manage that with varying degrees of success but any official currency has more intrinsic value that Bitcoin to the extent that the government has sovereign authority over a larger economy.

This doesn't mean that Bitcoin can't be valued but it means that the community has to have a strategy to provide equivalent reassurances.

>A fiat currency such as bitcoin lacks that intrinsic value and is valued based on consensus.

Just like a commodity then. Where does this "intrinsic value" that you think gold has come from?

Uses for gold (besides trade):

1. Jewelry

2. Electronics

3. Dentistry

----

Uses for USD (besides trade):

1. Rolling in it

2. Making it Rain

> Just like a commodity then. Where does this "intrinsic value" that you think gold has come from?

Your definition of commodity is incorrect. See http://en.wikipedia.org/wiki/Commodity:

“In economics, a commodity is a marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services.

The exact definition of the term commodity is specifically applied to goods. It is used to describe a class of goods for which there is demand, but which is supplied without qualitative differentiation across a market.”

Gold and silver meet this test because they have other uses (jewelry, industrial, dentistry, etc.) dating back throughout recorded human history.

In contrast, bitcoin – like all fiat currencies – has no value except as a unit of exchange. There's nothing meaningful that you can do with them unless you find someone else willing to accept them – defunct paper currency could at least be used for kindling…

> Commodities have intrinsic value.

Currencies aren't commodities and have no innate value. The represent wealth, they aren't themselves wealth.

> In the case of a government-backed currency, there's at least some value based on that government's ability to mandate its use for taxes.

That begs the question -- by which I mean it assumes what it should be proving (the real meaning of "beg the question"). The fact that government collects taxes using dollars as a medium of exchange doesn't mean the government's action validates dollars, but that government gives dollars the same regard the public does, for reasons having nothing to do with government itself.

> This doesn't mean that Bitcoin can't be valued but it means that the community has to have a strategy to provide equivalent reassurances.

The validity of dollars results from public familiarity, faith and trust. This may or may not happen with Bitcoin, but that's the usual route to currency validation.

> Commodities have intrinsic value.

The conversion rate of gold to USD vastly exceeds the intrinsic value of gold. People are investing in gold far more than they would ever invest in any other commodity.

In other words, you'd be a fool to use gold as a commodity material in manufacturing when any other similar material would do, because we've collectively decided that gold has more value than its usefulness as an element would otherwise indicate.

There are really two aspects to the term "currency" here, and you're kinda of right only with respect to one of them.

For one thing, Bitcoin (or any other digital currency) serves as an online replacement for cash. In that regard, lack of consumer protection is actually a feature; the possibility of chargeback is precisely what makes existing payment systems so exceedingly cumbersome. In fact, the fact that transactions are final (modulo contractual disputes) is exactly what you want in a large number of cases.

Obviously, as with real world dollar bills, you should never have more of a digital currency on hand than you can afford to lose, precisely because it can be lost or stolen. But the fact that physical money can be stolen isn't a bug, either. Nobody expects consumer protection against loss of physical money (outside of contract law and criminal laws against fraud or theft, of course, but those work for digital currencies also).

The other aspect is that of Bitcoin as a replacement for the dollar, the Euro, the Yen, etc. with built-in deflation because some people don't trust fiat currencies. This is kook territory and potentially worrisome, though still not necessarily a consumer protection issue: governments write consumer protection laws not for currencies, but for payment instruments, investment schemes, or contractual arrangements between businesses and individuals. And there's no reason why legislatures can't in principle also write laws to regulate Bitcoin traders.

> A currency requires backing by a central authority.

Not so. The proof is that Bitcoin is functioning as a currency, and the Fed chair has recently said that the government has no right to regulate it:

Link: http://www.theguardian.com/business/2014/feb/27/janet-yellen...

Quote: "The Federal Reserve has no authority to supervise or regulate Bitcoin, chair Janet Yellen told Congress on Thursday."

Falsified.

> EDIT: I would also like to add one simple thing. Here we are discussing a topic that falls into the field of economics. How many here are economists?

This is a logical error (http://en.wikipedia.org/wiki/Argument_from_authority). Do you have an opinion about whether astrology is real? You do? But you aren't an astrologer, so why do you think you have the right to your views? Don't you think you should ask an astrologer whether his field is valid?

It's not as though economics is a science, or that economic principles must be transferred from one person to another in a college classroom in order to be valid. If that were true, economics could not have come into existence in the first place.

> Bitcoin is functioning as a currency, and the Fed chair has recently said that the government has no right to regulate it

No, the Fed Chair (the chair of the Federal Reserve) said that the Fed (the Federal Reserve) had no power assigned by Congress to regulate it. She didn't say the government had no right (or more accurately, power) to regulate it. The Fed is not the same thing as the government.

> The Fed is not the same thing as the government.

And the Army isn't either, strictly speaking. But it's clear that the U.S. government has no right to control something like Bitcoin, and perhaps more interesting, it's not clear whether the government could control such things if it had statutory authority.

Given the Bitcoin is international in scope, and given that Bitcoin isn't solely a U.S. medium of exchange, the U.S. government has no right to control it, only to forbid its use in certain U.S. transactions if it chose to do so (as the Chinese have done).

> And the Army isn't either, strictly speaking.

Right, and if someone had taken a statement that, say, the Army has no power to regulate securities markets to mean that the government had no power to do so -- the equivalent of the error made in characterizing the Fed Chair's statement as being about the government authority with regard to bitcoin when it was about the Fed's authority -- that would be relevant.

> But it's clear that the U.S. government has no right to control something like Bitcoin

Its rather clear that the Congress has enumerated Constitutional power to regulate the value of any money that it doesn't issue in Article I, Sec. 8. Its also rather clear that the US government has a wide variety of powers to regulate commerce of an international or interstate character, regardless of whether it is conducted in bitcoins or bananas.

The only sense in which "it's clear that the U.S. government has no right to control something like Bitcoin" is in the sense in which the U.S. government doesn't have rights at all, it has powers. The US government certainly has a variety of explicitly granted powers that could be applied to regulate bitcoin -- and, in fact, some of them have been applied in a way which governs parts of the bitcoin ecosystem (as shown in, e.g., the FinCEN guidance on applicability of money service business rules to entities dealing in virtual currencies.)

>> But it's clear that the U.S. government has no right to control something like Bitcoin

> Its rather clear that the Congress has enumerated Constitutional power ...

I think yo may have replied to my sentence without reading it fully. Because BitCoin is an internaitonal entity, the U.S. government has no authority/right/power to regulate Bitcoin (note the upper case), only some U.S. transactions that involve bitcoins (not the lower case), using laws unrelated to virtual-currency issues.

> The US government certainly has a variety of explicitly granted powers that could be applied to regulate bitcoin ...

Do try to avoid confusion in your posts. "Bitcoin" with an uppercase first character refers to the Bitcoin system, but "bitcoin" refers to the elements of exchange. Your sentence is open to misinterpretation -- do you mean the virtual currency system Bitcoin, or do you mean transactions involving bitcoins?

> ... and, in fact, some of them have been applied in a way which governs parts of the bitcoin ecosystem

False (unless the same meaning ambiguity is present). Legal actions have been based, not on Bitcoin or virtual currencies, but on the specific uses for bitcoins, such as money laundering, drug trafficking and so forth. In other words, to date legal actions have addresses alleged crimes having nothing specifically to do with virtual currencies.

> I think yo may have replied to my sentence without reading it fully. Because BitCoin is an internaitonal entity

BitCoin (or Bitcoin -- for someone so caught up on details of capitalization, you fail to be consistent with it) is not an "entity" at all.

> the U.S. government has no authority/right/power to regulate Bitcoin (note the upper case),

Various international narcotics trafficking organizations are "international entities", and yet the US has both theoretical power (subject only to the extent to which it has expressly agreed with other sovereign entities to limit that power) to regulate them, and has exercised practical power to exert destructive power over them, including in their actions and operations outside of the United States.

So even if Bit(C/c)oin was an "international entity", that wouldn't support the conclusion you draw from it.

> do you mean the virtual currency system Bitcoin, or do you mean transactions involving bitcoins?

The statement is true of both, so, yes.

> Legal actions have been based, not on Bitcoin or virtual currencies, but on the specific uses for bitcoins, such as money laundering, drug trafficking and so forth.

This is true in the sense that all legal actions are based on actions, but substantively meaningless, and, in any case, I referred to regulation, not legal action enforcing that regulation. Obviously, the former must precede the latter (and, the need for the latter implies less than perfect success in the former.)

Agreed, trust and confidence //that it can be spent//. I don't think "trust and confidence" against terrible scenarios was a requirement 1,000 years ago, (FDIC formed 1933) yet people still had currency that was centrally issued and sometimes even based on gold/silver.

What you're really saying is "A currecy requires a central authority to absorb losses like the FDIC because it makes consumers want to use banks." I mean clearly, you aren't saying the FDIC should insure cash under peoples' mattresses in case they have a house fire that literally burns their wealth, right? The "backing" you're referring to only counts if you put it in a bank that complies with the FDIC, not by mere merit of owning the currency itself. In fact, there is absolutely no reason a person couldn't create a bitcoin bank and offer THE SAME PROTECTION. But who wants to do that when there is no Uncle Sam to pick up the tab for you?

EDIT: TL;DR: Bitcoin and keeping all your money as cash are effectively equivalent risk. In both cases, if you lose your wallet, you're screwed with no recourse. Hence, it is not by merely being centrally issued that risk automagically disappears.

> The number #1 requirement for a currency is trust and confidence in it. Why would anyone trust a currency which has no consumer protection whatsoever and provides zero recourse for when things inevitably go wrong?

Well, yes, I agree that paper money has these problems, but over time, in spite of many uncertainties, and in spite of occasional manipulation of paper money's value by the owners of the printing presses ... oh, wait, you're talking about Bitcoin, not folding money. My mistake.

> A currency requires backing by a central authority.

Are you serious? Dollars don't have this property. The only thing that gives paper money authority and value is public faith and trust -- there is no "backing", in the way you're using the term. If a freely elected administration decided to manipulate the currency for some political objective, they could fatally undermine it. It's a matter of political discretion:

http://2012patriot.files.wordpress.com/2011/08/inflation-1.j...

Why should a currency provide those things? Institutions using the currency can always provide those services better than the currency itself.

"Why would anyone trust gold when it has no consumer protection whatsoever and provided zero recourse for when things inevitably go wrong?"

Do you know? http://opentransactions.org/

This is one of the great works towards making bitcoin more secure for who uses it and enable transactions where nobody has to trust a third party.

We can point all the problems about bitcoin - as fiat money has lots of it. But we can also work for improving our chances of a better economics future.

Lets assume you're correct.

Why is Bitcoin still around? Why didn't it vanish a long time ago? Why don't people see the truth?

I've learned to never underestimate the supply of stupidity in the world.

We could ask the same thing about a myriad other things: scientology, religion in general, creationism, denial of climate change, racism, etc.

True, stupidity is a powerful force :)

I'm loathe to resort to "gold is/was a currency" but it does fit reasonably well. Its value is so far beyond its actual usable-as-a-thing value that it really doesn't matter if it's zero or not. If the gold market collapses, because that's completely possible, it takes every stockpile down with it and everything they propped up. Unless your argument includes that gold is stupid and not a currency, in which case we can at least agree we're being consistent :) It's hard to argue in favor of Bitcoin if you're not in favor of gold, and I'm not equipped to argue gold.

On the trust aspect: honestly, I trust algorithms more than governments. 1+1=2 has outlived every government in existence. Plenty of governments have exploded violently and without general awareness until it happened and I see no reason why X won't. "Safe" investments pop sometimes. Bitcoin is undeniably much more volatile, but that doesn't make it untrustable in the long run.

(for the record, my interest in Bitcoin is almost purely as a protocol. I just fail to see why it can't be considered a currency.)

> Why is Bitcoin still around? Why didn't it vanish a long time ago? Why don't people see the truth?

2000: ”Why is pets.com still around? Why didn't it vanish a long time ago?”

2007: “Why are mortgage values so high? Why didn't they return to historical averages a long time ago?”

If bubbles were obvious and corrected quickly, they'd never happen.

if $exchange provided his users with the same guarantees that normal banks do (i.e. insurance) it wouldn't really matter that it's not from the government, IMO.

On the other hand, I don't think anyone does.

No "regular" currency has any consumer protection at all. If there's a hole in my pocket and all my pesos fall out, they're gone, and ain't nothing the Banco de México can or will do about it.

You might go to the police about the pile of USD that was stolen from under your mattress, but you can do that for gold and yen and USB drives and potted plants, too. The US Treasury, however, won't help you a bit. Even if you send them photos of you holding the money.

It's the institutions that use fiat currencies that have "consumer protection". It's true that the financial system built around everyday use of domestic currency is more forgiving than current everyday use of Bitcoin. But that doesn't really have anything to do with the issuing authority; someone could offer reversible bitcoin payments on credit like AmEx or insure deposits like the FDIC (or SPIC, which is a more appropriate model). And probably they will. Except unlike USD you'll also be able to operate on a cash basis online, if you so choose.

There's not any particular protections for businesses or advanced uses in the conventional system, either. People hack and otherwise steal from banks all the time, and the banks usually just absorb the loss and try to get better. If you have your EUR in an Icelandic bank and they go under: sorry. And guess what: USD deposits in US investment accounts are not government-insured any more than the BTC in MtGox. Brokerages can (and usually do) have private insurance, and probably that will become desired in BTC exchanges. But have your bucks in an uninsured forex exchange and it goes poof? So do your bucks. Sorry, bad luck.

Why do normal brokerages and forex traders (which is more what a Bitcoin exchange is) not fail like Gox? Well, for one thing, they do, you just don't hear about it on HN. The real reason is that those are older systems and have more competence and experience, generally. The "regulators" require some basic competence, but not enough to save you from really bad management. Competence is what prevents a similar thing from happening to other exchanges out there. There's no magic in how the transactions are settled or who issues the currency. (Forex exchanges operate in a very similar environment, and generally work fine.) And you have to evaluate competence in a BTC business just like a fiat one.

Now, there's plenty of questions as to whether a deflationary money supply can work in the long term, and I kind of doubt it. But that's a different question from whether the crypto-currency mechanism, or a non-centralized issuer, works. They seem to work fine--if you pay attention. Running a bitcoin wallet is a bit like running a bank: not for everyone. A crypto that successfully manages inflation to preserve value will work just fine.

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