Re: [tlug] [OT] Mt.Gox Debacle. Please Comment.

["Stephen J. Turnbull" <stephen@example.com>]

Simon Cozens writes:

 > It you're a financial services company making simple and
 > fundamental mistakes with potentially $500m of other people's money
 > - and then disappearing - it's difficult to see how that counts as
 > "doing a decent job."

You mean like Yamaichi Shoken or AIG?  I agree, it's hard to call that
a "decent job."

 > I thought the whole reason why people rave about Bitcoin is that it
 > can be used for money laundering. Sorry, I mean "borderless,
 > untraceable transactions."

Ah, but they're not untraceable.  That's RMS's complaint about
Bitcoin.  (The fact that RMS doesn't like Bitcoin makes me want to
like it ... but no, that's nowhere near enough.)  Apparently it's
possible to remove some of the tracing, but doing it perfectly is not
easy.  (But even then, recovering the illicitly received Bitcoins may
be nontrivial.)

I won't go into the technicalities of whether they're "really" a
currency or not, and for convenience of terminology, let's just speak
of them as if they were.  There's a fundamental problem with Bitcoin,
and that is that it is both (a) a token currency, and (b) a private
one.  "Token" means that the currency has no intrinsic value, or at
least nowhere near the market value.  The fact that it's private means
that, unlike a fiat currency, there's no way to force people to accept
it.  (Consider the aborted currency knows as the 2000 yen bill.  For
some reason, people don't want it, but if you've got one -- or many,
for that matter, it's fairly easy to get rid of it.)  What's left to
give it value?  (1) It's a bubble.  (2) It provides a service that
other monies (whether currency or depository) don't.  AFAICS the
volatility of Bitcoin exchange rates is no accident.  I don't think
that the relative illiquidity of Bitcoin in small quantities is
particularly causative of its volatility, given that it has no
intrinsic value and very little in use (since it's quite traceable if
you have the power of subpoena, I don't think smart criminals will
like it all that much in the long run, and dumb criminals don't much
matter in the grand scheme of things, except to their victims).

Finally, Bitcoin is crippled as a major currency candidate in the long
run because the bigger it gets, the less useful it is as a medium of
exchange IIUC.  That is, each coin is an atom, indivisible.  Suppose
that the Bitcoin market takes over a large part of the world economy,
becoming worth as much as a tenth of the US money stock.  That's one
trillion dollars, give or take the odd CMU[1].  The maximum number of
Bitcoins is 20 *million* (same "give or take").  Ie, each Bitcoin
would be worth $50 million.  You'd need to be a billionaire (in
*today's* money) before you could afford to actually own one Bitcoin.

So in practice people using Bitcoin for payment would have to use a
derivative (probably depository) currency.  And ya know what?  Chase
and MUFJ are one fsck (and that's an e2fsck, not a reiserfsck) of a
lot safer than Mt.Gox or Silk Road as depository institutions.

Footnotes: 
[1]  Congressional Monetary Unit: "a billion here, a billion there,
pretty soon you're talking about real money."