I’ve had a few people ask me about Bitcoin recently. Rather than repeat myself more than I already have, I’m going to collect together some insightful links and copy/paste liberally from a public Facebook post’s comments, where I wrote on the topic when asked. My thanks to Marc Whitmore for prompting the initial discussion, hosting my diatribe in his comments with nary a cross word, and generally being a true gentleman.
First, and most importantly, this cartoon captures the essence of the problems with a multiplying number of currencies and payment systems.
Christian Wagner has written an excellent Bitcoin FAQ which summarizes matters fairly neatly.
Then there’s Charles Stross on Bitcoin, writing eloquently but concisely. He wants Bitcoin to die in a fire.
But back to my writing on the topic. This is just a lightly reformatted version of what I wrote on Marc’s Facebook post.
Why am I not using Bitcoin?
Because I don’t throw money and resources into things I don’t understand well, if I can help it, and because I understand that a public ledger means that it’s not at all anonymous; at best, it’s pseudonymous, unless and until someone does metadata analysis. I don’t want the whole world able to know my purchases and interactions, just by someone later releasing mapping tables associating Bitcoin ids with real world identities.
Because I don’t have a use for an anonymous currency, even were Bitcoin anonymous, since I don’t know how to be private from entities online if those entities are such that they’d drive me to have to choose an anonymous currency in the first place. And yes, I have a fairly deep understanding of how the Internet works. Stuff I want to be private? I would go into a bricks & mortar store, wearing a cap and nondescript jacket, both mass-production from some place like Walmart, and pay cash, having left all cards and electronic devices at home first.
Bitcoin’s biggest problem is that there is no privacy. All transactions are logged, with amount, sender and recipient, in a deliberately shared public ledger. If you can keep secret an association between a real-world identity and a Bitcoin hash identity, then you have privacy, but you can’t do that. For one, the moment you give someone you know your address, or put it on a page to get donations, you’re gone. The moment you use an exchange to swap for traditional money, you’re gone (money laundering “know your customer” stuff). And anyone watching traffic can do linkage analysis to figure out the social graphs and piece things together anyway. Which includes large corporations looking to monetize your relationship (FB, GOOG), and various competent intelligence agencies.
In short: only ever use Bitcoin for transactions you’re prepared to have the world know you undertook, whether that association happens immediately or five years from now.
Why am I not profiting from Bitcoin anyway?
Most importantly: I have a sense of personal integrity and am disinclined to make money off suckers just because I can. Scavenging from someone else’s gullibility is a particularly icky form of bottom-feeding.
As more practical advice to those who might be lured into investing in producing this currency: you’re being scammed. If you could legally rent machines to mine for cheap enough to mine them profitably, the providers of those machines wouldn’t need to rent them to you but could instead up their prices (until not profitable) and have a background task consuming any slack capacity, to mine directly for corporate profits. If there were enough money to be made from renting Amazon EC2 instances for Bitcoin mining, Amazon would cut out the middle-man and just make the money themselves. In fact, as the Bitcoin FAQ notes, realistic mining today requires very specialized custom hardware where you probably can’t get a return on investment for the cost of the electricity to power the hardware, let alone the purchase cost.
On currency and taxes
We live together in a society. That society provides services for the entire populace, some of whom could afford those services if buying on their own, some of whom couldn’t. We all benefit from a base level of services, whether that’s our increased life expectancies thanks to immunisation programs and shared water and sewerage systems; or having roads to travel and associate freely at a cost and speed which makes this viable for most, rather than just an upper elite; or just our all being able to live together in a more democratic system if everyone receives at least a basic level of education.
It costs money to provide these things, which requires taxes. You can argue about how that tax money is apportioned and the corruption which arises and our lack of decent controls on keeping this in check in the face of efforts to buy votes. You can work to limit the size of the taxes. But ultimately it is part of being a citizen in a society to pay towards the upkeep of that society. I sincerely hope that those who are investing in alternative currencies in an effort to move money around in currencies not currently tracked by revenue services get a rather nasty backdated surprise tax bill, and one which does not sympathize with the problems of volatile market prices.
-The Grumpy Troll
- What Did Not Happen At Mt. Gox by Emin Gün Sirer, 2014-03-01. Essential reading.
- Schadenfreude by Charles Stross, 2014-02-25.
- Twitter post by “Pocius Pocius”, 2014-02-17: “the best part about bitcoins is that you get to watch libertarians slowly discover why financial regulations exist to begin with”
- Bitcoin must die by Andrew Gallagher, 2018-10-12: clearly lays out how Bitcoin is an utterly pointless way contributor to climate change and an easy win, if we eliminate it. Note the clear distinction between blockchain-based ledgers and proof-of-work systems.