In an earlier post here on Samizdata, Bruce Hoult posted some very informative comments about MtGox and Bitcoin that we thought it warranted a higher profile, so…
So much misinformation!
What has happened is that people who bought Bitcoins on MtGox thought they owned them. They did not, according to the Bitcoin system. MtGox did. MtGox kept their own records of who ‘owned’ what. And MtGox were incompetent.
Which should have been apparent from the start: MtGox learns Bitcoin
The proper way to use Bitcoin is to keep your wallet of Bitcoins on your own computer. And back it up. Several times. Print it on paper if you want — it will likely fit on one side of A4 in not very small print. Keep it secret. Keep it safe. It is a bearer certificates. If you lose your wallet or forget the password then those Bitcoins are gone out of circulation forever.
That is not what happened with MtGox. They gave Bitcoins that people thought they owned (but did not) to other unauthorised people. It is theft. Just like a bank robbery. Those Bitcoins still exist, just in other hands.
This has absolutely no effect on people who keep their Bitcoins on their own computer (or phone). There are the same number in circulation as before. Bitcoins still can’t be counterfeited or inflated.
If you want/need to use a place similar to MtGox to turn normal money into Bitcoins then DO NOT LEAVE THEM IN YOUR ONLINE WALLET THERE. Make yourself an identity and wallet on your own computer and make a payment from your account on the Bitcoin exchange to your own identity. Then you are perfectly safe.
Well, you are if you do your backups diligently.
Or, if you want to turn normal cash into Bitcoins, find someone who has Bitcoins and wants cash, agree a price, have them do a transfer of Bitcoins from their wallet to yours (using the actual Bitcoin system, not an exchange), and hand them the cash.
The recent problems are not with the Bitcoin system, they are with finding trustworthy and competent ‘bank’ or ‘escrow’ services who will not lose or steal what they hold in trust for you.
To amplify on the previous.
Assume you want to use Bitcoins to buy a used TV, and both you and the seller have Bitcoin software and wallets on your own computers: You make a transfer from your Bitcoin wallet to theirs, using the Bitcoin software. You wait about 10 minutes for the next block of world-wide transactions to be created (mined). If you are paranoid, you wait for another block to be created, pointing to the one with your transaction.
At this point the transaction is recorded on thousand of computers all over the world. They all agree that Bitcoins have been transferred from you to the seller. The transaction is irrevocable.
Now you ask the seller to send you the TV. There is a risk that they will not send you the TV, even though they have the money.
This is exactly the same situation as any on-line auction site, or newspaper classifieds or whatever.
The solutions are the same. You can not get your money back, but you can damage their reputation in whatever venue you used to arrange the deal. Or you can meet them in person and do both sides of the swap in person. Or you can use a trusted third party as escrow — you give them the money, and the seller gives them the goods, and when they have both they pass them on.
The problem is to find a competent and trustworthy escrow service.
It looks as if a large Bitcoin exchange, Mt.Gox, has disappeared, along with large numbers of customers’ Bitcoins. The sequence of events is described in one Reddit post, and the media reaction is predicted in another, along with some advice:
…the lesson is not that we ought to seek out “regulation” to save us from the evils and incompetence of man. For the regulators are men too, and wield the very same evil and incompetence, only enshrined in an authority from which it can wreck amplified and far more insidious destruction. Let us not retreat from our rising platform only to cower back underneath the deranged machinations of Leviathan.
In general, Reddit seems to be the best source of information.
There are people predicting that this is the end of Bitcoin, and others pointing out that Mt.Gox is just an exchange, and not a very well run one at that, so good riddance because Mt.Gox has been blamed for price fluctuations in the past. Of course, there will be no state bailout. We might be about to learn what happens to a free market currency in a big crisis.
One of my favourite, regular visit websites is Dezeen. At least half of the stuff there is of very little interest to me. But, I find myself wanting to look at about a quarter of it more carefully, and a single figure percentage of what it sticks up tends to interest me a lot. That’s a lot of interestingness, when you consider that Dezeen is, as of now, updated several times every day.
In particular, Dezeen often features an interesting new gizmo, news of which can be easily rehashed into one of those ain’t capitalism grand postings that we love to do here, as often as we are able to tear our eyes away from the ghastliness of politics.
So, for instance, today, Dezeen has a description of a supersonic airplane, the distinguishing feature of which is that instead of the airplane having lots of windows for its highly paid passengers to look out of, it instead has cameras recreating the visual effect of looking out, and much more continuously and impressively than is possible when you are relying on real windows. Like this:
Quite how exactly this arrangement fakes the real experience of looking out of a continuous window shaped like that, I do not know. Will 3D effects be involved? But considering that the faster an airplane goes (this one is intended to be very fast indeed) the more expensive it becomes to carve windows into it, and considering that the cost and bulk and weight and quality both of cameras and of screens are all variables that are moving in exactly the right directions, this struck me immediately as one of those “Why did I not think of this?” ideas. By that I do not mean that I could do the actual work of contriving such an airplane, merely that I ought to have realised far sooner than today that other much more engineering-savvy people than I would very soon be talking in public about such notions, and that they presumably have been doing this for quite some while, without me noticing it.
I would further assume that the structural benefits to having an airplane which does not have a lot of quite large holes scattered all along its fuselage must be considerable. Yes:
“It has long been known that the windows cause significant challenges in designing and constructing an aircraft fuselage. They require additional structural support, add to the parts count and add weight to the aircraft,” said the company.
On the other hand, if what is required inside the airplane is concentration on the job to be done when the airplane has landed, as might well be the case, then other imagery can go in the “window” instead. Or, presumably, no imagery at all.
Relying on cameras for a task like this means that if the worst happens and the cameras all go haywire, nobody dies. A few people merely have a somewhat less amusing trip than they might have been anticipating. Do the pilots have an actual window in front of them? That might be wise, but maybe not.
Whatever the details are, and indeed whether or not this particular airplane ever gets anywhere near taking to the air, I’m impressed. And talking of people who are much more engineering-savvy than I am, I wonder what our commentariat thinks about this notion.
In the event that Scotland disregards my feelings and votes for independence, what currency would you recommend it use?
Opinions on this matter do not split neatly between Left and Right. Here are two of today’s articles on the subject; one from the Adam Smith Institute and one from the Guardian. A few days ago the pro-independence, pro-market campaign group “Wealthy Nation” republished this article from the Institute of Economic Affairs, recommending that Sterling be kept for the time being. It looks a serious piece, but it was written before the recent interventions by George Osborne and Manuel Barroso.
Commenters wishing to use words like “seignorage” are requested to give me warning first so that I can hide behind the sofa.
There is a theory that suggests to be good at business you must be hard nosed, ruthless, dishonest and fight for everything. It essentially suggests that business is a form of warfare carried out by individuals against each other where the winner takes all. It states that if you’re not tough enough you shouldn’t get involved in ‘business’.
This I have learnt is complete bollocks. Yes, there are bastards out there – lots of them. But the essence of good business is cooperation and honesty. It’s about finding and working with decent and honourable people. Men and women who value what you do, pay you on time, go that extra mile for you and want to achieve the same things as you.
You can, if you desire, swim with the sharks. You may even become the biggest shark. But most of the time you will end up swimming round in circles wasting time, money, resources and energy on people who simply don’t deserve that time. And certainly aren’t paying you a fair rate for it. These people will stop you achieving your goals and add no value to your life or your business.
My advice is simple. Be the good guy or gal, fight clean and keep away from the time wasters, charlatans and arseholes.
- Rob Waller
Be warned that this is not one of those “now read the whole thing” postings. That is the whole thing, apart from the title (“On Swimming with Sharks”) and the words “end of sermon” at the very end. And now you have those words here also.
The paper money of the Soviet Republic supported the Soviet Government in its most difficult moments, when there was no possibility of paying for the civil war out of direct tax receipts. Glory to the printing press! To be sure, its days are numbered now but it has accomplished three-quarters of the task. In the archives of the great proletarian revolution, alongside the modern guns, rifles, and machine guns which mowed down the enemies of the proletariat, an honorary place will be occupied by that machine gun of the People’s Commissariat of Finance which attacked the bourgeois regime in its rear – its monetary system – by converting the bourgeois economic law of money circulation into a means of destruction of that same regime and into a source of financing the revolution.
- Bolshevik economist Evgeny A. Preobrazhensky, in his booklet entitled Paper Money during the Proletarian Dictatorship, published in 1920.
Quoted by Dominic Frisby in Life After The State (p. 92).
Just quoted at Instapundit, from this report:
According to the study, there is “widespread concern” about the negative impact Bitcoin could have on national currencies and how it could be used to fund criminal operations and tax fraud.
The first half of that is presumably what they are really worried about, and the second half is how they are already selling the story.
Whenever you hear of businesses or others carping about the lack of financing for this or that preferred cause, and demand that the State (ie, you, the taxpayer) steps in to fill the gap, it is worth bearing in mind that one of the glories of capitalism is in coming up with ever more inventive ways of putting those who want capital in touch with those who have it. This is the thrust of an article in the magazine Reason by Greg Beato (February 2014 edition):
Traditionally, the wealthiest members of society have had little trouble leveraging their resources. Those resources are highly concentrated and thus easy to strategically deploy when necessary. For the 99 percent, government provided a way to accomplish this too. Everyone pays taxes, and as a result, we get streetlights and Yellowstone National Park.
But taxation is a pretty crude form of crowdfunding. You don’t get to choose the size of your contribution. You can’t directly specify its intended use. And even though our tax system lacks the functionality of Kickstarter, participation is mandatory. When some senator-of-a-friend-of-a-friend decides he wants to follow his bliss and finally build that $2.2 billion dream dam he’s been talking about all these years, you’ve got to chip in whether you like it or not.
Crowdfunding, in contrast, privileges hands-on, voluntary democracy. If you think the United States needs more solar infrastructure sooner rather than later, crowdfund it. If you think that service-sector jobs that pay livable wages are the key to widespread prosperity, crowdfund businesses that pay such wages.
For the allegedly disenfranchised 99 percent, it has never been easier to seek common cause with like-minded souls, to pool your resources, and to exert influence in strategic and tangible ways. You might even call this a shining age of middle-class empowerment. If anyone ever decides to make a documentary about it, the financing should be fairly easy to swing.
As I sometimes note, while Hollywood, for instance, often produces films that slag off capitalism, (Michael Moore being the most egregious case) or smaller independent film producers do the same, the irony is that they make use of the innovation in fund-raising that modern capitalism constantly throws up.
A related area of capital provision that bypasses banks – and their current, often stringent capital rules – is what is known as “peer-to-peer” lending. And needless to say, the UK financial regulator is getting concerned about this, fearful that people who lend money might make mistakes or, horrors, those who borrow might not fully understand the risks. Rob Fisher of this blog wrote on the topic last year.
All this flowering of capital-raising is not really all that new, if you think about it. The idea of equities and other securities has been around for a long time; what is new is that the internet has put both sides to the transaction in touch much more easily, reducing barriers and the frictional costs associated with it. That’s surely an example of the “long tail” effect at work.
I keep saying that if you care about poor people, you should be a libertarian.
The Institute for Fiscal Studies is pointing out that while poorer people are paying more for food and fuel, richer people are enjoying low interest rates. So government spending and borrowing and the artificially low interest rates that go along with that are harmful to poor people, as are taxes on fuel, and income tax on minimum wage earners, and countless other instances of state meddling.
Real money and a small state lead to high growth which makes everyone richer.
“With legal property, the advanced nations of the West had the key to modern development; their citizens now had the means to discover, with great facility and on an ongoing basis, the most potentially productive qualities of their resources. As Aristotle discovered 2,3000 years ago, what you can do with things increases infinitely when you focus your thinking on their potential.”
- Hernando de Soto, The Mystery of Capital, page 50.
I just wished the readers of my personal blog (and these people do exist) a Merry Christmas by sticking up photos of local tradesmen’s signs saying Merry Christmas.
But I saved this sign for here:
There is also a website. I particularly like this bit of it.
One of the intellectual highlights of my year has been hearing Anton Howes (whom I first noticed while noticing the Liberty League) expound the idea that the British industrial revolution was, at heart, an ideological event. The industrial revolution happened when it did and where it did because certain people in that place and at that time started thinking differently. To put it in Samizdata-speak, the metacontext changed. Particular people changed it, not just with the industrial stuff that they did, but with what they said and wrote.
I first heard Howes give this talk at my last Friday of the month meeting in July of this year. Happily, Simon Gibbs of Libertarian Home also heard Howes speak that night, and immediately signed him up to do a repeat performance, this time with a video camera running, for Libertarian Home at the Rose and Crown.
And the good news is that the video of this Howes talk at the Rose and Crown is now up and viewable at Libertarian Home. If spending half an hour watching a video does not suit, then you might prefer to read Simon’s extended summary of the talk. The same video is also up at YouTube.
I wrote a bit at my personal blog about that subsequent evening, and there is lots else I want to say about what Howes is saying. But one of the rules of blogging is not to let hard-to-write and consequently not-yet-actually-written pieces interrupt you putting up easier-to-write pieces that you actually can write and do write.
So: Anton Howes is a clever guy. Watch the video. And watch out for him and his work in the future.