It sounds like they started buying long before this latest hype cycle:
"The 31-year-old identical twins have amassed since last summer what appears to be one of the single largest portfolios of the online currency that has caused such a stir in financial and technology circles."
Though I do wonder about the timing of them going public with this fact. Perhaps they're trying to dampen the crash.
I'd bet you didn't read TFA:
But the 6-foot-5 Winklevii were unfazed by the latest tumult. Indeed, the brothers said they used the low prices to buy more
That the reporter got their comment about the latest plunge provides no evidence either way about when they first talked to the reporter about their Bitcoin holdings. For a story like this, it's almost certain that the interviewing began more than 48 hours ago.
(I'd bet you'd benefit from thinking more deeply before playing 'gotcha' with non-dispositive article excerpts.)
>"For their part, the Winklevoss twins have used some of their bitcoin to pay for the services of a Ukrainian computer programmer who has worked on the site of their venture capital firm."
Who is this new Ukranian Mark Zuckerberg they have just created? I am sure people should invest in his imminent Bitcoin spinoff...
You'd be crazy to put serious money into bitcoins. Not because it's fundamentally flawed as a currency (I don't have the expertise to know if that's true or not), but because if bitcoins ever become more than a sideshow governments around the world will make their use illegal (de facto if not de jure). People left holding the currency will be out of luck.
Controlling a currency is a politically easy route to tax everybody who uses it, and governments will not give up that privilege even if it means intrusive new controls on internet traffic.
Most money in the Eurozone flows through banks, and I think we've seen recently just how much control Eurozone countries have over their banks (pretty much as much as they want).
Because drugs are physical items that must be exchanged in person or sent across distances. For bitcoin transactions, literally all you need is two people on the planet with computers that are connected to each other on a network.
Do you expect all governments of the world to collectively agree on a ban of digital currencies? When was the last time all governments of the world agreed on anything?
Bitcoin's future is certainly uncertain, but I doubt its demise will stem from this angle.
How hard do you think it would be for the US or Chinese governments to amass the computing power needed to maliciously fork the Bitcoin block chain? You are looking at what, $20 million of ASICs? $30 million? Let's be completely unrealistic and say $100 million.
That is less than a tenth of what the government spent on the NSA's new datacenter in Utah. It's pocket change, barely even a blip on the budget of the US government. It requires a very small commitment of personnel and no fieldwork at all, and no real agreement from any other countries. If we called Bitcoin a money-laundering scam, if we attacked under the guise of evidence gathering (just reversing transactions so criminals won't get paid by our cops), I doubt many countries would object even if their citizens lost money in the process.
That is just with the known, well-documented polynomial time attack on Bitcoin. Given that there is no security proof and little formal analysis of the Bitcoin protocol, and not even the kind of heuristic analysis we rely on for block ciphers and efficient hash functions, I seriously doubt that an attack would even require that much effort.
The original argument was about governments making bitcoin de facto illegal. That's quite different from a deliberate attack.
As said, I agree that bitcoin may be heading for trouble, I just disagree it will happen through legislation.
And more generally I disagree it will happen by a third party deliberately disrupting it (either via legislation, the 51% attack or by other means). For a simple reason: A collapse of bitcoin (for any reason) will inevitably spawn a new, more resilient crypto-currency. The exact opposite of what the attacker was looking to achieve.
Why bother doing that when you can just hack or seize exchanges? If MtGox and the next 20 largest bitcoin exchanges get shut down how much more difficult would using bitcoins be?
Child pornography isn't even on the top ten list. It doesn't threaten anybody's rice bowl. A crusade against child porn might get you elected, but actually doing something about it doesn't matter to governments. If it did they would have shut Tor down already.
CP is hardly "government enemy #1." Terrorism is. You do not see one hundredth the attention or money of anti-terrorism activities directed towards 'protecting children.'
VPNs can be made illegal if necessary. That's already the case in some countries.
I think people generally grossly underestimate the reach of the government when it comes to the internet. Ultimately they can change the very foundation of the net if they see a compelling reason.
A cryptography cat-and-mouse game would be very, very interesting; secure channels can be used to secretly architect new channels, whereas broken channels can uncover secret methods and identify nodes in order to break more channels. (I suppose it's not much different than the Drug War or WW2; most wars revolve heavily around information.)
It would take some serious marketing effort to convince most Americans that encrypted communication must imply criminality, but sadly, it could be done.
Why do intelligent HNers spread this constant FUD that "governments will make Bitcoin illegal"? Seriously WTF?
Fact: there are plenty of currency/commodity markets (1) that the US government does not control and (2) that are used sometimes for illegal activities such as laundering, and yet the US government is perfectly fine with these markets existing and being legal because they are necessary for a healthy economy and are mostly used for legal activity. Two examples: gold (obviously the US does not "control" worldwide gold trades, and yet gold is often used for laundering), and foreign currencies (perfectly legal to hold and trade in the US, even those from countries with strained relationships with the US such as the Iranian rial, Burmese kyat, etc).
Supporting my viewpoint, the US Treasury Department, through FinCEN, has recently tacitly approved Bitcoin: http://www.businessinsider.com/is-bitcoin-legal-2013-4 It is obviously in the US' interest to let the Bitcoin economy grow, and merely get revenues from it by taxing trades, capital gains, etc.
It's not primarily about income. It's about issuing new currency. Let's say the US government doubles the number of outstanding dollars. All other things being equal, once things settle out your dollar is going to have about half the purchasing power it had before the extra money was issued. It's a wealth tax.
But let's say you saw this coming and put your money into hard assets or stable foreign currencies. When you sell those assets or currencies, you have a huge paper gain which the USG is going to expect you to pay income taxes on even though you haven't made anything at all in constant dollars. Again, a wealth tax.
well said. folks tend to forget that there's no entity such as a 'market' that you can deal with, there are only people, just like you with strengths and weaknesses, nothing more.
It's free of politics and human error if they keep all their btc in their own wallet.dat. Will look forward to seeing their solution to bitrot, entropy, and hardware failure.
OP: "Do we have any legal ground to stand on here? Lots of people have had their lives torn apart by this.
I remember NASDAQ had to compensate people after the debacle that was the Facebook IPO. Why is this any different?
I would appreciate your thoughts. Thanks."
Top response: "Well, considering bitcoin isn't regulated by the SEC - no you have no legal ground to stand on."
Further down: "So you want your unregulated currency to be.... regulated?"
OP in response: "There is a difference between financial regulations and corporate liability/consumer protection laws.
It's not about financial regulations."
In Bitcoin, we are currently watching a microcosm of how the traditional financial system came to be the way it is. It's really a rare opportunity to see the evolution of complex social systems in real-time.
"In Bitcoin, we are currently watching a microcosm of how the traditional financial system came to be the way it is. It's really a rare opportunity to see the evolution of complex social systems in real-time."
I fear we are also watching the schooling of a naive minority in the difference between what is "right" and what is "legal." Way too many people I've talked to about Bitcoin are so in love with the concept that they haven't really considered the implications. Yes, someone could, conceptually, break into Mt. Gox and "steal" all of the Bitcoins there, which some would see as a multi-million dollar equivalent theft, and the "authorities" would see it as a 'zero' dollar equivalent theft. Unlike regulated currency Bitcoin doesn't have an enforcement agency. That limits your options when it goes away.
I've been looking, such that I can, at various 'events' (alledged or actual unapproved transfers of Bitcoin from one wallet to another) and have yet to find a single one where there was any legal repercussions at all. I'm interested in finding some so if anyone reading this comes across them I'd love to read them.
This is really a 'new' thing when it comes to case law as far as I can tell and somewhat wide open to interpretation.
I mean that's a really astute point and raises interesting questions. If someone takes your bitcoin, is that theft? What if a bitcoin denominated contract is breached--did you really suffer economic damages?
r/bitcoin is an interesting subreddit. There was a thread yesterday where someone asked, completely serious:
"Theoetically speaking, what would happen if someone bought all the bitcoin? My friend wants to invest and he's concerned that the currency could be completely bought."
That's a naive, but not entirely unfounded concern. It's been quite common in the last few days to see enormous trading walls at certain values. If a large percent of the volume is set at an obscene price (200-1000% of the current average) then after a certain point, you effectively can't buy Bitcoin any more. There have already been enormous spreads (50$ difference and beyond) on several exchanges. That is not a sign of a healthy market to invest in.
Sure, but a lot of our financial regulations are implemented as regulations on exchanges and banks (and as far as I can tell, Mt. Gox functions a bit like both...)
As you acknowledge, currencies obviously do have traders, like George Soros. So it's hard to start a comment with "currencies don't have traders".
One of the problems with Bitcoin, of course, is that it is intensely speculative; its "users" hoard it, and its transaction volume as a currency is so extremely thin (blog tip jars and "spa powder") that its "exchange rate" (more appropriately, it's spot price) is untenably volatile.
Currencies do not have (>10% of volume of transactions) investors, they have (>90% of volume of transactions) users.
Currencies are primarily mediums of exchange and occasionally used as an asset class. Bitcoin is primarily used as an asset class and very occasionally used as a medium of exchange.
I don't think you're really disagreeing with me, we're just quibbling on semantics.
> Currencies do not have (>10% of volume of transactions) investors, they have (>90% of volume of transactions) users.
Are you sure about your numbers?
from the fx exchange wikipdeia page:
> As such, it has been referred to as the market closest to the ideal of perfect competition, notwithstanding currency intervention by central banks. According to the Bank for International Settlements,[3] as of April 2010, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion, a growth of approximately 20% over the $3.21 trillion daily volume as of April 2007. Some firms specializing on foreign exchange market had put the average daily turnover in excess of US$4 trillion.[4]
If you are right that less than 10% of fx transactions are traders and there is 4 trillion in fx trades a day then there must be 36 trillion in non trader transactions a day.
That seems a bit high to me:) I think if anything you've got your values transposed:)
Bitcoin is also founders' shares in a potential new future, a future where crypto and loose internetworked coordination replaces many old habits and institutions.
It's definitely not just a 'payments system'. It's also not well fit to the traditional idea of a 'commodity'.
I was emphasizing that it has some aspects of shareholder equity. Indeed, the keys which hold balances can be used to do things like weighted stakeholder votes: see the ideas for bitcoin-related [proof-of-stake] systems, or [bitcoin colored coins] for stockholder-of-record mechanisms embedded in the blockchain.
Whether this 'speculative equity' aspect actually subverts bitcoin's potential use as a payment system, or instead complements it by creating a community-spirit and aligned-incentives for growth, is something that time will tell.
But trying to shoehorn Bitcoin into any of the traditional categories -- currency, commodity, payment system, cash, unit of account, equity, etc -- risks overlooking how strange and capable it might be. Bitcoin laughs at the old definitions, and extends out orthogonally into utility dimensions that were previously hard to even see.
No, you can see it subverting the payment system right now. In the lifetime of a good-for-10-minutes Bitpay quote, the spot price for Bitcoin can and has swung by tens of dollars.
Your argument is basically a flight to abstraction. Everything can be made to sound good in the abstract. In reality, Bitcoin is first and foremost a speculative bubble.
No one day, week, month or year determines the essential qualities of something.
Fiat currencies have also faced unpredictable discontinuities of value: bank holidays, confiscations, hyperinflation. After decades, some of these were partially ameliorated in well-run countries... but still flare up as risks in times of crisis.
What you call a 'flight to abstraction' I call an interest in the enduring essence of this new thing. Yes, the froth that's in today's headlines is a speculative bubble. So what? Everything grabbing headlines is a speculative bubble of attention. And, there are a lots of speculative financial bubbles. Sometime they precede real, but slower, explosions of value. That's the interesting topic, and calling a 'bubble' has no probative value on that longer-term question.
Pick any particular day in 2014. I'll bet you $100 that the value of 1BTC in USD on that day will be higher than today's pre-freeze MtGox traded price ($124)... which is itself almost double the value on some currently-operating exchanges. If we're on, just let me know your chosen date in 2014.
In the last 50 years, at what point has the US dollar swung so wildly that you couldn't safely use it to denominate the cost of a $99 (2013 dollar) good or service?
Because for BTC those points included "all of today and yesterday".
You can see how your reasoning is broken with your 2014 comparison, when you say "pick a day in 2014 and BTC will probably be higher". You don't seem to grasp that upswings are just as disruptive to a currency as downswings.
I have no interest in, and don't think Bitcoin's success depends on, using it as a unit to advertise the purchase price of a good or service.
Even so, Bitcoin can still work as a cheap payment mechanism -- via intermediaries which insulate buyers/sellers from exchange-rate risk, using Bitcoin simply for the fast irreversible software-controlled transfer of value. The cost of such hedging may be less than the cost of traditional fees and chargebacks.
But maybe Bitcoin's not even best understood as a 'currency'. That's just a word, whose broad semantic boundaries were fixed in the early 20th century, before anything like Bitcoin, or even the Internet and general-purpose computers, existed.
So arguing over whether Bitcoin is a good 'traditional currency' is boring. What's interesting is whether Bitcoin is valuable, on its own terms as something new, and whether it will be more valuable in the future.
A bubble this day/week/month/year doesn't tell us much about that question. Volatility only affects some uses -- like your example of publishing prices of other things in Bitcoin. Other potential users are, or could be, indifferent to volatility, as long as the trend is up. Some will even like volatility, if that volatility is usefully uncorrelated with other assets.
And if your pronouncement isn't that it's an overvalued, speculative bubble, but simply that it's going to have upswings and downswings, but is just as likely to be more valuable at any future point as less, then so what? Often ultimately-valuable equity shares in some new project go through wild value swings, because long-term success is so hard to predict and sensitive to so many unknowns.
I'm not a fan of the limited 'payments system' framing of "what Bitcoin is", but maybe you can think of a way to pick a date in the future where we can objectively assess whether Bitcoin is growing as a payment mechanism or not.
At that point we'll know whether the volatility has destroyed Bitcoin's value as a payments system, or whether Bitcoin's use in payments has thrived despite (or maybe even aided in non-intuitive ways by) the headline-grabbing volatility. Offer a testable prediction generated by your insight, and we'll test it!
The test of my insight, that Bitcoin is something valuable whether it's a currency or not, is: is Bitcoin worth more in 2014 than 2013? And further out, are all balances controlled by Bitcoin principals (keys), on the Bitcoin chain or future 'baby Bitcoins', more valuable at future dates than their cost-to-acquire today?
This is an odd argument, suggesting as it does that Bitcoin has some value independent of its utility as a currency. What else could its value be?
I assume you already grok that anything, from toenail clippings to used tissue paper, can spark a speculative bubble. All you need is a story convincing enough to get the ball rolling, and then momentum takes over.
There are many things, tangible and not, that are valuable and traded other than 'currency'. Why do you see Bitcoin only through that lens?
Innovation has created many things that are valuable, which didn't even have names before they existed, and much of the value comes simply from mutual consensus. Joint stock companies. Intellectual property. Domain names. Mineral rights. Publicity rights. Bonds. And many would say also: fiat currencies themselves are a consensus, but useful, hallucination.
There's always a bit of self-spawning alchemy in this process. "We choose to broadly value this, because when we broadly value this, other good activities ensue."
Again, my framing is: one of Bitcoin's aspects is as (divisible, transferable, even votable) equity in something with interesting novel characteristics. There are a lot of people, working on a lot of interlocking things, for which Bitcoin balances will be the price-of-participation. If that coordinated-action superstructure throws off enough value to its participants to be self-sustaining, each unit will continue to grow in value.
And sure, current volatility makes 4-year-old Bitcoin worse, for many uses, than the best 100-plus-year-old fiat currencies (USD). Bitcoin also has capabilities no 'currency' has ever had before. Your argument seems to be, "it's not been stable enough yet for quoting prices of things, so it's no good for anything" and "it's been in some crazy bubbles, so it can never be useful or valuable".
New hard-to-value things are volatile. Only experience creates stability. As you note, anything can suffer a bubble... sometimes the underlying thing continues to build real value, and sometimes it doesn't. Merely observing that it's bubbly so far is just frothy gossip. Yes, and...?
So your insight is: bit coin is something new, that has inherent value, and is unlike anything that came before it, just like other things that were new. And your contention is that bitcoin's primary function is "to go up in value?"
Bitcoin has certain core qualities: limited supply, fast transfer, pseudonymity, decentralized governance, self-managed credentials. (It also has some fringe/potential qualities: ability to represent software contracts, ability to represent fractional ownership/voting interests, support for micropayments.)
It's too early to determine what its primary function(s) will be, arising from these qualities. People are doing interesting, potentially valuable things with it, including a bunch of things that are also done with 'currency'.
If Bitcoin turns out to win a fraction of the market for international money transfer, or online purchases, or gray/black market purchases, the existing units could be worth a lot more than now.
If the combination of constitutional counterfeit/inflation resistance, plus consensus adoption for a few other things, makes it attractive as a rare store of value (like gold), it will also become much more valuable.
These are big ifs, but they're not impossibilities, and the way that Bitcoin is like equity is that it has aligned the interests of all its holders to try to create the systems/world where Bitcoin continues to be more valuable, as with founders' shares in any other startup. They start as mere paper, sold at negligible 'par value' under the idea that someday, others will want them too, because they will represent valuable claims on future capabilities. With the incentive-aligned work of the team, that future may come to pass, creating a lot of value. Or not.
So yes, in a sense, one of its purposes is: get all the people who hold Bitcoin working together towards increasing its value (and related things). Like equity shares.
No, the comparison doesn't happen in a vacuum. 4-year-old Bitcoin must compete with the 217-year-old dollar, not with economy of the times of the Articles of Confederation.
I think I was being generous by supplying a 50 year window of comparison.
Makes no sense. At the least you'd have to compare today's dollar with bitcoin in 217 years (when both are mature - if they still exist). Since that's not possible dollar-comparisons are probably best avoided.
Abstraction is the keyword here, I really don't agree with yours.
Bitcoin and USD are not the same abstraction. USD is a currency and Bitcoin is an entire monetary system. One that's different enough that initial friction is entirely unsurprising.
It has the potential to change how a core function of society works (money transactions). Much more so than e.g. the invention of the credit card, or electronic banking.
Such a shift is quite obviously not happening within 4 years or anywhere close to it.
At this point it's still a tiny experiment that may very well fail. But apple/orange comparisons don't do it justice. And since this all happens between consenting adults I'm sometimes a little confused by the negativity.
Most novel technologies (and social/legal-arrangements) start off much worse than the established alternatives. Risky, unfamiliar, sketchy, only of interest to niches. But then they get better.
"a future where crypto and loose internetworked coordination replaces many old habits and institutions."
Except that Bitcoin is not crypto, it just uses a couple of cryptographic primitives. Cryptographic payment systems have security definitions that do not allow for polynomial time double spending attacks (Bitcoin does not even have a rigorous definition of "double spending").
Bitcoin relies on a bunch of crypto for it to work, far moreso than traditional currencies, commodities, or shares. It also relies on ubiquitous computing and internetworking, and the styles of thought that accompany those things.
Yes, it's underdefined and underproven from a professional or academic crypto perspective. But worries about such perfection slowed or discouraged others from building something similar or better before now.
In that way, Bitcoin's a bit like Linux or the Web: an ad-hoc success where more professional approaches had stalled, in development or adoption. It likely has some success-bringing aspects that even its designers and current maintainer don't fully understand, but lucked-into. Sometimes these things are only fully appreciated in retropect.
Also like Linux or the Web, a lot of formalization and hardening can be bolted on later, now that the essential utility is proven and the potential rewards for fixes are clear. Even if giant parts of the existing system collapse -- the SHA256-based mining, the P2P transaction broadcasts, the bloated global blockchain -- if the ledger of keys & balances survives, multiple teams will then try to reboot a next-gen system that allows those balances to keep trading.
(I conjecture that crypto control of 1 BTC today might wind up, a decade or two hence, spawning usable balances in a number of official and unofficial offshoot projects... vaguely like how 100 shares in the original AT&T eventually wound up becoming shares in both AT&T and the 7 'baby bells'. We will see 'baby Bitcoins' in the future, which attempt to accelerate their adoption by endowing everyone wiht a Bitcoin balance a balance in the new system as well.)
If you keep trying to point something out and no one gets it, maybe the thing you are trying to point out is false?
The subjects of the article are converting USD into bitcoin in the hope that one day in the future their bitcoin is worth more than it is today. What else would you call that but "investing", and "speculating" at that?
The OpenCoin a16z invested in is presumably Ripple (where the parent company named itself OpenCoin relatively recently), not the long-standing and more useful OpenCoin.org (which is an open source electronic cash protocol library).
The problem the Winklevoss twins have is that they seem to be placing a bet on what they believe will be a long-term secular trend through an instrument that is extremely volatile and better suited to speculation, and that will probably continue to be for the foreseeable future. In doing so, they're taking on a level of risk that is unnecessary given their investment thesis.
If the Winklevoss twins truly believe that the future of "virtual currencies" is bright, their investments should be focused almost exclusively on ecosystem companies, not the currencies themselves.
"This social network idea looks great, let's tell Mark Zuckerberg about it!"
"Bitcoin has been rising so fast, we should sink a few million dollars into it!"