Dialog with a bitcoin critic

8 Apr

A friend of mine left the followiong comment on Facebook when I announced my new blogs:

“Let’s count all the ways bitcoin is a terrible idea.”

He then gives his top ten list of the reasons why bitcoin is a crackpot scheme that will steal all your money if you are foolish enough to get involved. I’m not sure if he is pulling my leg, but his list contains a shocking lack of literacy on the technical foundation of bitcoin in every item. Since this is a sterling opportunity to correct each of these misconceptions, which are certainly widely held by those only vaguely familiar with the concept embodied in the bitcoin network, I will respond to each of his ten items individually. In this post I tackle numbers 1 through 3…

“1. It’s a plan written by a phantom person no one has ever been able to track down in the real world.”

It is a plan, written entirely in the open and freely available for anyone to criticize or improve, by a man or woman who knew he or she could potentially be a target of suppression by the federal government to protect the Federal Reserve Bank’s monopoly on money creation, and was appropriately careful of privacy, to the point of anonymity.

Incidentally, this person only started the design and implementation of the bitcoin software. It is now the product of hundreds of independent designers, coders, testers, bug reporters, debuggers, each participating on a voluntary basis, and each having full access to the code base. Yep, that phantom person must have been real darn cagey to figure how to hide the plans for his nefarious Ponzi scheme right out in plain sight like that!

“2. It sets a “limit” on the quantity of units based on how many “puzzles” have been hidden somewhere on the net for people to “mine” … with the incredible, unimpeachable assumption built in that the creators wouldn’t DARE create more than they promised they would create.”

 There is a basic misunderstanding of the operation of bitcoin apparent in this assertion. The limit on the amount of currency to be created does not depend on computers solving “puzzles” that have been “hidden” on the web by the crafty bitcoin masters, so there is no way for them to create new “puzzles” to “hide”. The limit is purely algorithmic, and cannot be changed by any single person, although any person willing to learn a computer language can examine the source code and verify the function of the algorithm controlling the rate of bitcoin production. The “hidden puzzles” idea is like telling a child that babies are brought by the stork. It is just a dumbed down version of a process that is difficult for most people to understand. There are many clear explanations of the bitcoin mining algorithm freely available on the web. Probably the best from a technical standpoint is the original paper published by that phantom person, Nakamoto Satoshi, and available here:http://www.bitcoin.org/bitcoin.pdf

 I have also written an explanation of bitcoin, which I will post in the next few days.

“3. Bitcoin is currently in heavy use by drug cartels and organized crime, which is why the Federal Government just announced anti-money laundering regulations specifically for bitcoin.”

The dollar is currently in heavy use by drug cartels and organized crime, which is why the Federal Government created money laundering regulations in the first place. The Federal Government just announced guidance for how it believes its existing regulations apply to various actors in the bitcoin economy. You can access the guidance document here.There were no new regulations specific to bitcoin announced.

Here are numbers 4 through 10. I will leave it as an exercise for the reader to come up with a response to each of these statements, and I will give you the correct answers in subsequent posts.

“4. The transactions are supposedly “safe” because, because they’re public record. We’re supposed to believe in this safety despite the fact that major data portals like Facebook, Google, Bing, Twitter, etc. can now deduce or infer with high probability incredible amounts of information about your career, sexual orientation, political views, etc by just the kinds comments you make on your Facebook profile and news feed. Yet, somehow, we’re supposed to believe that there isn’t enough processing power in the world to deduce who is associated with which transaction in a bitcoin log.


5. While there are ways to cash into bitcoin, it’s extremely difficult to cash out of it.

6. Even if you buy the theory that there will never be more than 21 milliion bitcoins (because you were promised that, right?), that quantity is nowhere near large enough to actually serve as a viable currency in a world economy consisting of over 7 billion people. We’re supposed to believe that this will be accomplished by subdividing bitcoins into subunits called “satoshis” (named for the fictional creator of bitcoin), although no one has actually been able to figure out how to accomplish this subdivision.

7. Supposedly, only the last bitcoin gets subdivided (according to Wikipedia). That’s just plain wacko!

8. Bitcoins are backed by … well … nothing. It’s fiat money issued by “the market”, which of course is why we’re all supposed to say, “Oh, what a wonderful idea!” … even though it’s a crackpot idea.

9. No one seems to have thought about how people will track all the public transactions associated with bitcoin if it somehow managed to become a popular, world-wide currency despite all the strikes against it. I suppose we’d all have to end up carrying around storage arrays so we can make sure we aren’t being cheated, right?

10. I could go on, but why bother? The whole concept is a nut job.”

to be continued…

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