Krugman bitcoin generals

Paul Krugman Is Excited to See Bitcoin Have Issues

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You sent us emails — many, many emails — over the last several months, maybe over the last couple years, with questions like these:. All right, so what is Bitcoin? It strikes me that the world is currently divided into two groups of people: Now, the second group is large — but the first group is noisy.

I have nothing to do with Bitcoin…Umm, I was just an engineer doing something else. A Chinese government crackdown on domestic trading of the virtual currency Bitcoin is starting to have an effect. The prosecution claims Charlie Shrem was involved in a drug money laundering scheme via the Silk Road website.

It was only virtual money, but it is gone… The largest Bitcoin exchange declared bankruptcy in Japan today. Gox online exchange, based in Japan, was hacked out ofcoins of the virtual currency earlier this week, valued at near half a billion dollars.

This incident produced headlines declaring that the Bitcoin revolution is over. One way to look at it is basically Mt. Gox has to fail for Bitcoin to be able to go mainstream, because Mt. Gox was never set up to be able to take Bitcoin mainstream, which is basically happening now.

So is Bitcoin headed for the mainstream, or oblivion? What problem does it solve — or is it a solution in search of a problem? And, perhaps most important, should you care? Twitter, Pinterest, you know, a very large number of the mobile apps people use all the time. E-commerce we do a lot, and lots of other categories of technology. Okay, and before that, and before that, and before that, you were doing things like helping build the first browser that a lot of us who got on the Internet when it was new started to use, Netscape Navigator.

Before that Mosaic, yes? So Marc Andreessen has, quite literally, a vested interest in Bitcoin. And there are these encampments that these generals have all around the city.

But they have a coordination problem, which is they have to be able to communicate with each other to develop the battle plan and to decide when to launch the attack. The twist to it is some of the generals are traitors.

But none of the other generals know which ones are traitors. You know, one of the huge problems of the Internet over 20 years is who do you trust, which websites do you trust, which people do you trust when you do a transaction, who do you trust?

And so this idea of the Byzantine Generals Problem turns out to apply directly to the Internet as a whole. And so, the ability to very easily pay somebody online, the ability to very easily charge for a piece of content, the ability to very easily exchange a digital title, or a digital key, or a digital contract has just been missing because you have no mechanism for establishing trust. And so Bitcoin basically holds out the promise of being the first solution to establishing trust over an untrusted network.

Now, you may be thinking, wait a minute! I think of Bitcoin as really a revolutionary new technology that is in some ways way past due. Now you each have a digital copy. You are not supposed to be able to spend your money and keep it too. What they do is essentially transfer IOUs back and forth to make sure that digital money is not spent twice. And that public ledger is maintained by a set of computers all talking to each other using a protocol.

Without us knowing each other ahead of time, I can send you a unique piece of digital property that might be digital cash, or a digital key, or a digital contract. And basically everyone can inspect this blockchain any time they want, and they can basically prove through the math of Bitcoin that that transaction actually took place.

The blockchain that Andreessen just mentioned is what Susan Athey was describing earlier as a public ledger. It is a log of all transactions in the Bitcoin ecosystem. Now, banks and other financial institutions already have ledgers of their own, which let them transfer funds internally or with other trusted parties.

Okay, what sort of economic possibilities does that open up? Those industries have made fortunes by taking a cut of every transaction, which a virtual, and virtually frictionless currency like Bitcoin, could perform for much, much less. What kind of markets might benefit?

One is the remittance market. So you know, we have poor people from developing countries go abroad…and then they remit their money back home to their home country to feed their children or their parents and their families…And the fees can be around 10 percent.

Some of that business will be transactions, some of that business will be digital contracts, some of that business will be digital keys, digital signatures, and then the system will start to work itself into…things like antifraud, or things like public payments, or things like micropayments. Wait a minute, anti-fraud? Well credit card fraud, we actually know basically what credit card fraud costs the economy which is basically most of the credit card fees.

And so economy wide across all credit card transactions, credit card fees range basically between two and three percent. The majority of that is paying for fraud. And so one way to think about credit card fraud, is credit card fraud is a two-to-three percent drag on the entire economy. Credit cards never anticipated online transactions.

Credit cards, by the way, the credit card system, never anticipated malware running inside a cash register at Target. In the s that was an inconceivable idea, which is when credit cards were dreamed up.

That said, the volatility of the currency scares people, and including scaring off some of the people that Bitcoin supporters like yourself would probably like to not be so scared off. Or is that not the way this problem could have been solved? First of all, Bitcoin can be used as a transaction system without being used as a currency. It can be used that way. And so literally the way that could happen is when you go to buy something on the Internet you basically do a conversion of dollars to Bitcoin, send the money across the wire, and then the merchant on the other end immediately converts Bitcoin right back to dollars….

The main fee that you would pay for the transaction use case today is the fee to exchange Bitcoin and dollars back and forth. And you might spend the Bitcoin by buying something from one of your suppliers, or you might spend the Bitcoin by you know, having a refund program, a rebate program, a loyalty program back to your customers or whatever it is.

And so that will be part of the kind of economics that will determine, you know, who chooses to hold Bitcoin versus who chooses to convert it back to regular currency. Similarly, very shortly there will be derivatives, there will be Bitcoin derivatives, and there will be Bitcoin insurance. So what are the advantages of a currency and or transaction platform that is not affiliated in any way with a government?

You know we complain about our government all the time, but like it works pretty well… I think the benefit to Bitcoin not being connected to a government is much greater in poorly run countries. And, you know, you go all over the planet once you get outside of the U. And so typically they have corrupt governments… And then you also have a lot of countries that have very badly run banking systems and very badly run central banks…And so I think in a lot of the rest of the world, outside the U.

So you can see why Marc Andreessen is such an evangelist for Bitcoin — aside from the fact that his firm has Bitcoin investments. But what about the Mt. Gox exchange getting hacked to death to the tune of several hundred million dollars? What about the potential criminal uses of a virtual currency?

But it is very easy to do that now digitally using Bitcoin. Now, you also asked about Bitcoin when we were running our public-radio pledge drive, asking you go to Freakonomics. A comic-book shop in Bozeman, Montana is doing it.

I think it would take a turnkey provider that we could go to that would essentially say yes you can just put this little widget on your site, you can set your prices in dollars, we will do all the translation on the backend, we will take all of that headache off of your shoulders. So they would handle all of that and just say we will make it so you can do this and overall the net transaction fee is still going to be lower than every other credit card processor.

I know of a few startups that are exploring this, again serving that kind of middleman, risk mitigation function. So we will guarantee you a rate for the next 24 hours.

And we will handle all the processing. I have no idea what the capitalization is of any of those firms. In the early days of the Internet, almost all the big telecom CEOs said this thing will never work, almost all, by the way, the big technology CEOs said this thing will never work, the media CEOs all said this will… Let me tell you a quick story: Like, and advertisers are never going to advertise on this thing.

And like consumers are never going to use this… The early days of the web were not primarily people talking about how great it was going to be, the early days of the web were primarily people talking about all the bad uses. Although I will tell you this: It was Milton Friedman — also a Nobel laureate — injust a year after Paul Krugman told us the Internet was only a fad:. I think that the Internet is going to be one of the major forces for reducing the role of government. And you may get that without knowing who I am.

That kind of thing will develop on the Internet and that will make it even easier for people to use the Internet. Of course, it has its negative side. It means that the gangsters, the people who are engaged in illegal transactions, will also have an easier way to carry on their business.

It always comes back to the gangsters — even though gangsters have always done pretty well with cash, as have tax evaders. And in that role, I run the Department of Financial Services, which oversees all banks, insurance companies, and everything in between in the state of New York…. First of all, is the number right, 6.

Not that I expect you to have the… okay…. Bitcoin therefore, as of today at least, would represent a tiny, tiny, tiny drop in the biggest, biggest, biggest bucket.

Why are you worried about Bitcoin? Or why are you concerned enough to think you might should be worried? I think it has potentially a bright future to it, and it could really, potentially, at least the technology could, revolutionize, or at least improve upon our existing payment systems. Lawsky recently organized a two-day fact-finding mission to help his office write some of the first Bitcoin regulation in the United States.

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Bitcoinpage 39

Where ideas wait to be mined into the block chain of the collective conscience Some transactions may be invalid Atom Feed. Saifedean Ammous - November 08, Originally published May 19, From the settlement layer view, the growing adoption of Bitcoin is increasing its liquidity internationally, allowing it to compete with global reserve currencies for increasingly more valuable transactions, causing transaction fees to rise.

Harding - July 29, Originally published July 28, Losing easy quantification but gaining stronger privacy seems like a good tradeoff to me. Jimmy Song - May 08, The recent enthusiasm for ICOs has made the manipulation even worse and continues to hide the fact that Bitcoin is doing really well. Daniel Krawisz - January 08, This article is about how money interacts with the rest of the economy after it has matured and about how mismanagement by an issuer can cause it to fail.

Daniel Krawisz - August 07, If it became easier for people to trade different forks of the same currency, then investors could get direct experience with different ideas without endangering the network.

Daniel Krawisz - July 13, Daniel Krawisz - June 20, Oleg Andreev - November 17, Originally published May 23, If achieving consensus in a non-trust manner is ever possible in practice, then it is only possible with a Proof-of-Work scheme and highly specialized expensive production chains.

Daniel Krawisz - February 08, Bitcoin upgrades must be a clear improvement to Bitcoin as an investment or else they face a sharp uphill battle to adoption.

Daniel Krawisz - January 12, Daniel Krawisz - January 06, Originally published September 03, Bitcoin makes conspiratorial group cohesion more difficult. If the Fappening took place as I described, then this effect is right at the center. The possibility of getting bitcoins by releasing secrets caused the group to fall apart. Daniel Krawisz - January 05, Originally published October 25, The difference between Bitcoin and a Ponzi scheme is that in a Ponzi scheme, the early adopters benefit by cashing out.

With Bitcoin, there is no reason ever to cash out. Daniel Krawisz - January 04, Originally published November 30, Daniel Krawisz - January 03, Originally published November 22, Daniel Krawisz - January 02, Originally published October 04, There are two ideologies in the Bitcoin world. Michael Goldstein - December 24, Protecting ourselves from the dangers of crypto-anarchy requires embracing it even more fully and internalizing and practicing the virtues that have helped great men weather the storms of life since antiquity.

Daniel Krawisz - November 08, Originally published July 10, All Bitcoin entrepreneurs today build on top of the success of the Silk Road. Their work was made possible by his. Oleg Andreev - October 02, Originally published December 28, Bitcoin raises the cost of many kinds of attacks, going far beyond protecting against central banks meddling with money supply. Andrea Castillo - September 30, Originally published June 10, Bitcoin provides us alternatives to compelled trust in monopolies but it can never obviate the need for trusted human connections.

Michael Goldstein - September 11, Peter Dushenski - July 04, Originally published April 29, Only Bitcoin can restore the necessary balance between the Gods. Only Bitcoin can give us life. Pierre Rochard - July 04, Bitcoin will overtake weak currencies like the dollar through speculative attacks and currency crises, not through the careful evaluation of tech journalists and 'mainstream consumers'. Daniel Krawisz - June 29, Potential Bitcoin attackers are in a Prisoner's Dilemma.

In the same way that the people cannot easily rebel against the king owing to a lack of coordination on their part, governments cannot rebel against Bitcoin for the same reason. The government puts the people in a Prisoner's Dilemma against one another, and Bitcoin does the same to government agents. There is a fundamental agency problem with Bitcoin: They cannot rationally be trusted without extreme costs being imposed on them which are more stringent than traditional banks. Daniel Krawisz - May 24, Daniel Krawisz - May 16, Daniel Krawisz - May 10, Someone still lost in the dollar world looks at Bitcoin and sees wild and extreme volatility, whereas someone in Bitcoin looking back at the dollar sees the worst and longest economic crash in history.

Daniel Krawisz - May 03, The difference between money and a bubble is that a commodity whose price is a bubble actually has some underlying value. Daniel Krawisz - April 26, Does Bitcoin need to be sanitized and separated from its anarchist, black-market roots in order to become acceptable to the general population?

Daniel Krawisz - March 29, Government currencies will rapidly lose value as Bitcoin supplants it. What will such an event be like and how can it be understood economically?

Daniel Krawisz - March 14, Daniel Krawisz - February 25, Daniel Krawisz - February 12, Daniel Krawisz - February 01, Daniel Krawisz - January 28, Daniel Krawisz - December 20, No one should ever use Mastercoin under any circumstances or appraise their value as anything above zero.

Pierre Rochard - December 15, The Bitcoin Central Bank will be the longest lasting institution of its kind thanks to the anti-fragile independent monetary policy it has set in stone.

Daniel Krawisz - August 22, Daniel Krawisz - July 02, Once it was known that bitcoin could be sold, even for a pittance, new possibilities opened up. Daniel Krawisz - June 24, Proof-of-work should not be seen as a mysterious or wasteful system, but as something functional, natural, and potentially of value for the design of any communication protocol.

Daniel Krawisz - June 05, Daniel Krawisz - May 29, Daniel Krawisz - May 22, Pierre Rochard - February 22, There is no reason to deposit your money with a 3rd party. Bitcoin makes fractional reserve banking an obsolete technology.

Pierre Rochard - February 19, Pierre Rochard - December 24, New capital formation is the impetus for two trends that push the equilibrium of all industries towards decentralized markets: Some works may be subject to other licenses.

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