Doug Henwood

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Tyler Zimmer explains how the strange story of a "crypto-currency" reveals the underlying irrationality of a system that's designed to work for the rich only. Today, each one is valued in the tens of thousands of dollars. In the last year alone, prices have risen more than 1, percent--which has made Bitcoin front-page news. Defenders of capitalism are fond of saying--often in a smug, patronizing way--that critics of the system simply don't "understand how markets work. The obvious example to point to would be the global economic meltdown, but we might just as well reference the fact of stagnant real wages for workers, soaring income and wealth inequality, and steadily worsening ecological destruction, to name only a few examples of capitalism's ills.

To these examples, the right wing responds with a mixture of dismissiveness on the one hand--"climate change is a myth and inequality isn't that bad"--and stubborn insistence that the solution to every problem is even more privatization, corporate tax breaks, spending cuts and deregulation on the other. Neither side of this response is an answer, of course--because capitalism inherently, not accidentally, produces recurrent economic crises, material deprivation, ecological destruction and inequality.

Irrationality is a constituent feature of capitalismnot an aberration caused by meddling state interference. Far from being evidence of a rational, efficient core at the heart of the system, the current Bitcoin craze is a classic example of an asset bubble that will, sooner or later, burst. It's worth dissecting the dynamics that produce such waves of speculation, because they cast serious doubt on the rose-colored-glasses view that markets always produce optimal results for all. Capitalism is, of course, a system based on private ownership and control of capital, in which those owners make decisions in the marketplace based on doug henwood bitcoin wiki they think or hope will maximize their wealth.

Even the system's defenders concede that these actors aren't fundamentally making decisions based on what other people need or want--their immediate goal is maximum return on investment.

Sloan, a long-time CEO of General Motors, once said that "it is the business of the auto industry to make money, not cars. For the capitalist investor, it's immaterial "where" whether funds are invested in the actual production of goods and services or in any manner of arcane financial instruments.

Doug henwood bitcoin wiki that matters is that the investment generates the desired returns. Right now, Bitcoin prices, though volatile, are still on the upswing, which incentivizes investors to hop on the bandwagon in the hope of reaping profits from speculation--from buying low and selling high.

Indeed, this desire to buy low and sell high is driving the bubble, not any widespread allegiance to the ideological underpinnings of Bitcoin, doug henwood bitcoin wiki, as Doug Henwood points outare spurious.

This, in turn, creates a positive feedback loop: Let's step back for a doug henwood bitcoin wiki and take stock: Right now, millions of dollars are flowing into Bitcoin and other "crypto-currencies," even though they are accepted by almost no one, and few, if any, large businesses use them to keep their books. But investors, motivated by the opportunity to reap short-run speculative gains, don't care that the thing--can we even call it that?

Because so many people are already betting on prices continuing to climb, prices are pushed up even more--thereby incentivizing even more investment. Under any plausible definition of rationality, this speculative frenzy is irrational. To judge from past examples of asset bubbles, at some point, the surge will stall out, and panic will set in.

Those seeking speculative gains will try to cash out and reap their reward. But not everyone will cash out as a winner. Once the rush to sell begins, prices plummet, producing doug henwood bitcoin wiki opposite effect that drove the bubble in the first place. This process is more or less exactly what happened to the stock market bubble of the doug henwood bitcoin wiki s, the credit market and housing bubbles of the early s, and many other cases.

And today, it's not just crypto-currencies where we see these dynamics at work. The Dow Jones Industrial Average is up 24 percent compared to this time last year--and real doug henwood bitcoin wiki prices are on the rise as well. As even the OECD's economists recognizeall of this is the predictable result of an economic climate in which the ruling class is flush with surplus cash to invest, but few opportunities for profitable investment in the real economy.

Uncoordinated individual investors act to maximize short-run gains--and the collective result doug henwood bitcoin wiki their behavior is often disastrous, even for tens of millions of people who play no direct role whatsoever in fueling these speculative bubbles in the first place. For workers--those of us with no way to earn a living doug henwood bitcoin wiki by selling our ability to work for whatever price we can get for it--these frenzies in response to asset bubbles offer neither opportunities for substantial speculative gain, nor hope for macroeconomic stability that might result in rising wages and low unemployment.

First of all, what gains are to doug henwood bitcoin wiki had will be appropriated privately by a small number of wealthy people with lots of extra cash to invest. And whatever fallout results from the bursting of the bubble will probably not be shared evenly--as the crisis demonstrates, workers are usually the ones who bear the brunt of the mess after the ruling class's speculative party is done.

Second, rising asset prices don't necessarily mean wages will rise, too, nor doug henwood bitcoin wiki they necessarily a sign of an increase in business investment resulting in new job creation. If the last few years are any indication, we can expect that most gains from speculation will be either hoarded by the rich or plunged back into more investment in asset bubbles--and the inevitable losses when the market takes a turn for the worse will translate into downsizing, layoffs, speedup and so forth as financially strapped capitalists look to make up their shortfalls by squeezing workers even more.

All this begs some questions: How can anyone say that capitalism is a system that efficiently meets human needs when it is often highly profitable for some to speculate on casino-like financial markets that have nothing to do with human needs in the first place? How can the ideologists of capitalism say doug henwood bitcoin wiki they system maximizes efficiency when it misdirects massive sums of resources into self-destructive waves of speculation that leave millions of people worse off when the bubble bursts?

In a world desperately in need of massive new investment in health, education and ecologically sustainable energy and technology, how can anyone think that this shortsighted, anarchic, profit-driven system is the best that humanity can hope for? Indeed, it's not for nothing that millions of people--especially so-called "millennials"--are turning their backs on this system and expressing their preference for a socialist alternative.

It's not for nothing that thousands of activists are joining socialist in the hopes of taking this world in a new direction. Let's hope that wave of support for the left continues. And let's hope it offers up the possibility of breaking free from the tyrannical grip of the profit system. Pause for a moment to think through what this state of affairs says about the capitalist system.

Needless to say, this isn't the way capitalism doug henwood bitcoin wiki works. As always, it's important not to miss the dynamics of class struggle at work here. About Us Contact us. Join us doug henwood bitcoin wiki Socialism ! Socialism Chicago July View doug henwood bitcoin wiki full size.

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Bitcoin [ note 5 ] is an online payment system invented by Satoshi Nakamoto , [ note 6 ] who published his invention in , [ 12 ] and released it as open-source software in Bitcoins are created as a reward for payment processing work in which users offer their computing power to verify and record payments into the public ledger. This activity is called mining and is rewarded by transaction fees and newly created bitcoins.

The European Banking Authority [ 28 ] and other sources [ 14 ]: The use of bitcoin by criminals has attracted the attention of financial regulators, [ 29 ] legislative bodies, [ 30 ] law enforcement, [ 31 ] and media. As of [update] , the criminal activities centered around theft and black markets. Officials in countries such as the United States also recognized that bitcoin can provide legitimate financial services to customers. The block chain is a public ledger that records bitcoin transactions.

A novel solution accomplishes this without any trusted central authority: Network nodes can validate transactions, add them to their copy of the ledger, and then broadcast these ledger additions to other nodes. Approximately six times per hour, a new group of accepted transactions, a block, is created, added to the block chain, and quickly published to all nodes.

This allows bitcoin software to determine when a particular bitcoin amount has been spent, which is necessary in order to prevent double-spending in an environment without central oversight. Whereas a conventional ledger records the transfers of actual bills or promissory notes that exist apart from it, the block chain is the only place that bitcoins can be said to exist in the form of unspent outputs of transactions.

The unit of account of the bitcoin system is bitcoin. Named in homage to bitcoin's creator, a satoshi is the smallest multiple of bitcoin representing 0. A microbitcoin is sometimes referred to as a bit. Ownership of bitcoins implies that a user can spend bitcoins associated with a specific address.

To do so, a payer must digitally sign the transaction using the corresponding private key. Without knowledge of the private key the transaction cannot be signed and bitcoins cannot be spent. The network verifies the signature using the public key. A transaction must have one or more inputs. For the transaction to be valid, every input must be an unspent output of a previous transaction.

Every input must be digitally signed. The use of multiple inputs corresponds to the use of multiple coins in a cash transaction. A transaction can also have multiple outputs, allowing one to make multiple payments in one go.

A transaction output can be specified as an arbitrary multiple of satoshi. Similarly as in a cash transaction, the sum of inputs coins used to pay can exceed the intended sum of payments. In such case, an additional output is used, returning the change back to the payer. To send money to a bitcoin address, users can click links on webpages; this is accomplished with a provisional Bitcoin URI scheme using a template registered with IANA.

Mobile clients recognize Bitcoin URIs in QR codes , so that the user does not have to type the bitcoin address and amount in manually.

The QR code is generated from the user input based on the payment amount. The QR code is displayed on the mobile device screen and can be scanned by a second mobile device. Mining is a record-keeping service. A new block contains information that "chains" it to the previous block thus giving the block chain its name. It is a cryptographic hash of the previous block, using the SHA hashing algorithm. A new block must also contain a so-called proof-of-work.

The proof-of-work consists of a number called a difficulty target and a number called a nonce , which is jargon for "a number used only once". Miners have to find a nonce that yields a hash of the new block numerically smaller than the number provided in the difficulty target. When the new block is created and distributed to the network, every network node can easily verify the proof. The fact that the hash of the new block is smaller than the difficulty target serves as a proof that this tedious work has been done, hence the name "proof-of-work".

By changing the difficulty target number, the average time required to find a nonce can be shortened or extended A smaller number reduces the range of accepted nonces and increases the time required.

The bitcoin system adjusts the difficulty target number every blocks so that the average time the entire network needs to find a nonce always remains about ten minutes.

In this way the bitcoin protocol ensures that it will always take about ten minutes to add a new block regardless of the size of the network or the sophistication of the mining hardware it employs. The proof-of-work system alongside the chaining of blocks makes modifications of the block chain extremely hard as an attacker must modify all subsequent blocks in order for modifications of one block to be accepted.

As new blocks are mined all the time, the difficulty of modifying a block increases as time passes and the number of subsequent blocks increases. The environmental cost of mining includes the generation of electricity. Even if all miners used energy efficient processes, the combined electricity consumption would be 1. As of [update] , it has become common for miners to join organized mining pools , [ 44 ] which are used primarily to reduce variance.

The reward is then split among the members creating a more steady stream of income without necessarily lowering the total expected amount of rewards for each miner when averaged over time, although a fee may be charged for the service. The successful miner finding the new block is rewarded with newly created bitcoins and transaction fees. To claim the reward, a special transaction called a coinbase is included with the processed payments.

The bitcoin protocol specifies that the reward for adding a block will be halved approximately every four years. Eventually, the reward will be removed entirely when an arbitrary limit of 21 million bitcoins is reached c. Paying a transaction fee is optional, but may speed up confirmation of the transaction.

Fees are based on the storage size of the transaction generated, which in turn is dependent on the number of inputs used to create the transaction. Furthermore, priority is given to older unspent inputs. A wallet stores the information necessary to transact bitcoins.

While wallets are often described as a place to hold [ 54 ] or store bitcoins, [ 55 ] due to the nature of the system, bitcoins are inseparable from the block chain transaction ledger. Perhaps a better way to describe a wallet is something that "stores the digital credentials for your bitcoin holdings" [ 55 ] and "allows you to access and spend them". Bitcoin uses public-key cryptography , in which two cryptographic keys, one public and one private, are generated.

There are several types of wallet. Software wallets connect to the network and allow spending bitcoins in addition to holding the credentials that prove ownership. Others are simply paper printouts. Another type of wallet called a hardware wallet keeps credentials offline while facilitating transactions. The first wallet program, called Bitcoin-Qt, was released in by Satoshi Nakamoto as open-source code. Bitcoin-Qt, also called Satoshi client, is sometimes referred to as the reference client because it serves to define the bitcoin protocol and acts as a standard for other implementations.

Privacy is achieved by not identifying owners of bitcoin addresses while making other transaction data public. Bitcoin users are not identified by name, but transactions can be linked to individuals and companies.

Users concerned about privacy can use so-called mixing services that swap coins they own for coins with different transaction histories. Wallets and similar software technically handle bitcoins as equivalent, establishing the basic level of fungibility. Researchers have pointed out that the history of every single bitcoin is registered and publicly available in the block chain ledger, and that some users may refuse to accept bitcoins coming from controversial transactions, which would harm bitcoin's fungibility.

Bitcoin was invented by Satoshi Nakamoto, [ note 6 ] who published his invention on 31 October in a research paper called "Bitcoin: A Peer-to-Peer Electronic Cash system". Bitcoin is often called the first cryptocurrency [ 19 ] although prior proposals existed.

One of the first supporters, adopters, contributor to bitcoin and receiver of the first bitcoin transaction was programmer Hal Finney. Finney downloaded the bitcoin software the day it was released, and received 10 bitcoins from Nakamoto in the world's first bitcoin transaction.

Other early supporters were Wei Dai, creator of bitcoin predecessor b-money , and Nick Szabo, creator of bitcoin predecessor bit gold. In , an exploit in an early bitcoin client was found that allowed large numbers of bitcoins to be created. Based on bitcoin's open source code, other cryptocurrencies started to emerge in In March , a technical glitch caused a fork in the block chain, with one half of the network adding blocks to one version of the chain and the other half adding to another.

For six hours two bitcoin networks operated at the same time, each with its own version of the transaction history. The core developers called for a temporary halt to transactions, sparking a sharp sell-off.

Normal operation was restored when the majority of the network downgraded to version 0. In some mainstream websites began accepting bitcoins. In October , Chinese internet giant Baidu had allowed clients of website security services to pay with bitcoins. Gox and the Europe-based Bitstamp to become the largest bitcoin trading exchange by trade volume. As of [update] mining had become quite competitive and was compared to an arms race as ever-more-specialized technology was being utilized.

The most efficient mining hardware makes use of custom designed application-specific integrated circuits , which outperform general purpose CPUs and also use less power. In the US two men were arrested in January on charges of money-laundering using bitcoins; one was Charlie Shrem , the head of now defunct bitcoin exchange BitInstant and a vice chairman of the Bitcoin Foundation.

Shrem allegedly allowed the other arrested party to purchase large quantities of bitcoins for use on black-market websites. In early February , one of the largest bitcoin exchanges, Mt. Gox , [ ] suspended withdrawals citing technical issues. Gox had filed for bankruptcy protection in Japan amid reports that , bitcoins had been stolen.

The Gathering cards, [ ] Mt. Gox had once been the dominant bitcoin exchange but its popularity had waned as users experienced difficulties withdrawing funds. On June 18, , it was announced that bitcoin payment service provider BitPay would become the new sponsor of St.

Petersburg Bowl under a two-year deal, renamed the Bitcoin St. Bitcoin was to be accepted for ticket and concession sales at the game as part of the sponsorship, and the sponsorship itself was also paid for using bitcoin.

Less than one year after the collapse of Mt.