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Lets talk bitcoins
June 3rd, Kansas City: The Internet currency and the fears, nobody talks about
We all heard over the last two years the term "bitcoins", the virtual currency. We heard wild stories, big blunders and stories of success and enthusiasm. We heard, Mt. Gox, one of those bitcoin trader was hacked and millions of dollar's worth in bitcoins disappared. The US Internal Revenue Service has ruled bitcoins for puposes of taxation as an asset, means property, not a currency. To sum it up, we heard a lot of bits and pieces and nothing really made sense in the bigger picture. So, it's time to talk a bit bitcoins and Bitcoin or "The Protocol" as Bitcoin advocates call it. But as usual here, lets do it from the angle most people never hear about in other outlets.
Fine, one bitcoin trading place was hacked. It won't be the last. Regular banks are hacked all the time and the interfaces are often enough used by scammers and hackers. Actually, given the volume, bitcoins are statistically as safe as banks, or for example giving your credit card number to a certain retail chain. No, probably safer than the latter one. As Target found out the hard way last year, the Cloud can be quite cloudy.
So, while used as a propaganda argument, it's not really the problem here. Other transactions happen in the Internet as well, not only bitcoin transactions. PayPal was hacked because certain activists didn't agree with their decisions to not perform transactions for certain criminal organizations. Long before PayPal even considered bitcoin transactions. So that is a moot point.
Then, there is the tax problem. Imagine you earn money in the form of bitcoins. Now, those bitcoins change, in relation to the dollar, almost permanently the value. Most of the times up. It can be, you get $1000 worth in bitcoins, and a week later, when you use the bitcoins to buy something, the value has climbed already to $1200 .. or even higher. So, by the IRS decision, you have to mention in your tax report, you bought a cup of coffee and made in the process a profit from the increased worth of your asset, the bitcoin. Which of course is not practical.
And then, there is a problem of regulation. Who regulates them, those tiny littly bold bitcoins? Chuck Schumer, known for other mindless political stunts about almost everything, he couldn't wrap his brain around, tried once to get the bitcoins banned entirely from the US. Till someone told him, that would mean to shut down the Internet. What a bummer! Not even Chuck Schumer wanted to go there.
Now, what's the real fear here and who is afraid? See, the IRS position and those of other national revenue services is clear. They want their piece of the cake. They don't care what currency, they don't care where or how you make your profit, they just want your money. So, with the usual paranoia and greed that is typical for big government agencies, they enforce laws and rules that are impossible to follow just on the assumption nobody pays their taxes voluntarily and there would be, maybe, a part of your life, they can't put their nose in.
Now, lets look at national governments and lawmakers


. By all means, they must hate bitcoins. They maybe take campaign donations in bitcoins (they can because they usually don't plan on reporting such donations as income anyway), but otherwise, they have to hate them. Why? Quite simple. Look back at the times of Bernie Bernanke. He increased, via the bond operation, the number of dollars in circulation. Money out of the nothing. Of course, it made the oil, gas and food prices climb, but that's a problem, the little people have to deal with, not his big wig friends. For them, it was more money in the pot and the enormous pile of debt, Obama has piled up didn't look so bad anymore after this little operation.
Now, what if some people are payed in bitcoins? Bernanke would have pressed down the value of the dollar ... and their income would still keep value because it wouldn't be in dollars but in bitcoins. Alone the existance of a measuring scale independent from government and government-near agencies is terrible for such authorities. No more messing around with the worth of your income because it becomes obvious in a second. Even worse, since a single national government can't meddle with their own currency anymore, because bitcoins aren't their own currency to begin with, it means, it takes a lot of the monetary power from people who have dedicated their lives to the accumulation of power. Any questions, why they would hate that?
Now, the bitcoins or The Bitcoin have still some way to go. There is explaining to do. New bitcoins for example are not created on a whim or the the more or less subjective ideas of a central bank boss but by a process that includes decrypting messages which is in itself so much effort that the creation of bitcoins is limited simply by ressources as computing power. Which is nice, but ends up with a very pragmatic problem. The number of coins in circulation is small and can't grow too fast which, given the increasing volume af trade will lead to some very low prices because every single bitcoin is worth so much. Which makes at some point at least a bitcent necessary to avoid billions of them become subjects to rounding errors.
The access is another problem. Fine, some advocates say, this will help poor people in rural areas of the world who have the next bank 100 miles away. But despite all enthusians and naivité, those people have usually no Internet connection and probably no computer at all. Which brings us to smartphones. Fine, you can do your Bitcoin transactions from a
smartphone. Alas, while bitcoins are relative safe per se, the smartphone isn't. And then, where is your wallet? The bitcoin wallet? You have it somewhere, probably in a cloud. As the Target case showed, clouds have their problems and the saving of critical data records in a cloud is always an iffy subject, regardless what those cloud providers like to tell you to sell their services. Bitcoins in the cloud are not safer than dollars, credit card information and health information. But bitcoins as a solely Internet-based entity stand and fall with technology. So, despite it's basically not the Bitcoin's business, those who try to make it in the mind of the people safe and reliable have to make sure, this wallet can be accessed even from an old computer somewhere in a jungle village with low performance connections as from a brand new smart phone model in Times Square ... and without inviting the next hundred hackers to plunder the customer's wallet. Measures to protect bitcoins from forgery are only one part of the equation, the other part, usability will in the end decide about the Bitcoin's success in the wider range as a day by day means of payment. And because of the Schumers of the world hating them so much for the loss of power a non-nationally regulated currency brings with it, the people behind bitcoin, a lot of very normal people in many aspects, will not enjoy any help from any national government. Because the fear of power loss will stop any career politician to do what common sense would dictate ... unless of course, their power loss would be rewarded by an even bigger power loss of a political enemy, that would level the playfield, wouldn't it

- PB -
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