Re: [cryptography] Digital cash in the news...

[Nico Williams]

On Mon, Jun 13, 2011 at 11:19 PM, Steven Bellovin  wrote:
> Thank you for saying something.  In my opinion, the post you
> were replying to is worse than impolite; it's racist crap that
> -- apart from being factually incorrect -- is utterly irrelevant
> to anything even vaguely connected to this list.

Thanks for noting that and for going further.  Indeed, I'm rather
embarrassed to have been so shy in my own response.

> The list is about cryptography.  It's also about the relationship
> of cryptography to society.  It's not about harebrained theories
> of how the ills of society are caused by untermenschen.

Hear hear!

Nico
--
___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Digital cash in the news...

[Danilo Gligoroski]

Nicholas Bohm write:
>>> Now I find I can exchange a little over five bitcoins for a  50 
>>> Amazon gift certificate that Amazon seems happy to credit to my 
>>> account.

Danilo Gligoroski wrote:
>> Your example is about two actors: Amazon and BitCoin, acting within 
>> small amounts of goods, services and issued currency.

John Levine wrote:
> No, it's not.  There's someone who will trade you Amazon gift 
> certificates for bitcoins.   
> Amazon neither buys nor sells bitcoins.


Not (directly, yet), but for the end user who possess a bitcoin it appears as 
that. The concept of having several entities in the financial chain between the 
end consumer of the goods and the issuer of those goods is present in the human 
history for thousands of years. I see that those kind of financial chains are 
building around the concept of Bitcoin too.


> I still am not aware of anything you can actually buy for bitcoins 
> (as opposed to trading them for various kinds of real and fake money) 
> other than drugs.


Insisting on the story that you can only buy drugs by bitcoins in my view is 
too harsh toward the concept of Bitcoin. Last week I was in Helsinki on a 
summer school for cloud computing and there a guy offered me to buy me a beer 
with his bitcoins. 

I do not have any Bitcoin (yet), but as time goes on, probably I will have one. 
CERTAINLY NOT FOR BUYING DRUGS, but because I want to see how that nice crypto 
design works and grows in practice. The allegations that the Bitcoins are tool 
for buying drugs will probably repel some potential Bitcoin owners and sadly 
will imprint them as a dangerous social group.

To paraphrase Peter Gutmann from his post on this topic from last week: How 
about the allegations about "The Bitcoin-based Child Porn Market" and "The 
al-Qaeda/Bitcoin Connection".

Regards,
Danilo!

___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Crypto-economics metadiscussion

[Nathan Loofbourrow]

On Mon, Jun 13, 2011 at 9:40 PM, Peter Gutmann wrote:

> Marsh Ray  writes:
>
> >I 'aint no self-appointed moderator of this list and I do find the subject
> of
> >economics terribly interesting, but maybe it would make sense to willfully
> >confine the scope of our discussion of Bitcoin and other virtual
> currencies
> >to the crypto side of it.
>
> Absolutely.  We need a virtual Perry.


What if we created a peer-to-peer network for approving posts by
timestamping approvals and hashing them into a chain of proof-of-work? Then
we can all compete to moderate the list by application of CPU power.

n
___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Crypto-economics metadiscussion

[Peter Gutmann]

Marsh Ray  writes:

>I 'aint no self-appointed moderator of this list and I do find the subject of 
>economics terribly interesting, but maybe it would make sense to willfully 
>confine the scope of our discussion of Bitcoin and other virtual currencies 
>to the crypto side of it.

Absolutely.  We need a virtual Perry.

Peter.

___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Digital cash in the news...

[Steven Bellovin]

> The idea that race is correlated with crime may be un-PC, but it might
> also be correct.  Of course, an incorrect theory of race/crime
> correlation might be offensive to people who do not subscribe to PC if
> the theory were ill-informed, such as by being based on anecdotal
> evidence only.  But the main thing is that the use of derogatory
> racial or ethnic terms is neither PC nor polite.  I don't insist on PC
> and wouldn't think much of anyone who did, but I do insist on a basic
> degree of politeness (I've may have been annoyed to the point of
> rudeness once or twice on a public mailing list, but never would I
> utter an insult, much less a racial epithet).
> 
Thank you for saying something.  In my opinion, the post you
were replying to is worse than impolite; it's racist crap that 
-- apart from being factually incorrect -- is utterly irrelevant
to anything even vaguely connected to this list.

The list is about cryptography.  It's also about the relationship
of cryptography to society.  It's not about harebrained theories
of how the ills of society are caused by untermenschen.  



--Steve Bellovin, https://www.cs.columbia.edu/~smb





___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Digital cash in the news...

[Nico Williams]

On Mon, Jun 13, 2011 at 8:22 PM, James A. Donald  wrote:
> On 2011-06-14 1:29 AM, Nico Williams wrote:
>> Second, we
>>
>> don't need to use derogatory terms here.  There's a difference between
>> being polite and being PC,
>
> If someone mugged you, you were mugged by a non asian minority, probably
> black, and if someone failed to pay a toxic mortgage in the bay area, he is
> a non asian minority, probably hispanic.  The street crime problem is a race
> problem, and the financial crisis in America is a race problem.

The idea that race is correlated with crime may be un-PC, but it might
also be correct.  Of course, an incorrect theory of race/crime
correlation might be offensive to people who do not subscribe to PC if
the theory were ill-informed, such as by being based on anecdotal
evidence only.  But the main thing is that the use of derogatory
racial or ethnic terms is neither PC nor polite.  I don't insist on PC
and wouldn't think much of anyone who did, but I do insist on a basic
degree of politeness (I've may have been annoyed to the point of
rudeness once or twice on a public mailing list, but never would I
utter an insult, much less a racial epithet).

Nico
--
___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Crypto-economics metadiscussion

[Steven Bellovin]

> 
> 
> Well, obviously, bitcoin is succeeding because the financial crisis has 
> caused loss of trust in government approved and regulated solutions.

"Obviously"?  "I do not think this word means what you think it means".




--Steve Bellovin, https://www.cs.columbia.edu/~smb





___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Is BitCoin a triple entry system?

[Zooko O'Whielacronx]

Also related, Eric Hughes posted about something he called "Encrypted
Open Books" on 1993-08-16. The idea was to allow an auditor to confirm
the correctness of the accounts without being able to see the details
of people's accounts.

Regards,

Zooko
___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Crypto-economics metadiscussion

[James A. Donald]

On 2011-06-14 2:31 AM, Marsh Ray wrote:

I 'aint no self-appointed moderator of this list and I do find the
subject of economics terribly interesting, but maybe it would make sense
to willfully confine the scope of our discussion of Bitcoin and other
virtual currencies to the crypto side of it.


The crypto side of it necessarily includes what crypto is doing, and 
what it should do, what crypto can be sold.


The discussion of bitcoin was "Why bitcoin"

Well, obviously, bitcoin is succeeding because the financial crisis has 
caused loss of trust in government approved and regulated solutions.


That the financial crisis was caused by bad behavior that justified this 
loss of trust is controversial, and apt to result in off topic discussion.

___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Digital cash in the news...

[James A. Donald]

ObCrypto: sorry, got nothing.


This crisis has a lot to do with the fact that Bitcoin is doing well, 
and suggests demand for other cryptographic solutions.


As orthodox places to put your money and perform transactions are 
increasingly suspect, people are now willing to consider unorthodox 
places to put their money and unorthodox means to transact, when 
formerly there was really no demand.


Now there is demand.  And that the crisis was caused by regulators is a 
major reason for that demand.


If crypto's mission is to enable people to sign on to their banks 
without being phished, then this discussion is wholly irrelevant.


If crypto's mission is to enable people to do transactions without being 
scammed, then existing scams not employing cryptography are wholly relevant.


If government regulation was ineffectual or actively damaging, then we 
need cryptographic solutions that provide security in ways that bypass 
the government and regulators - hence the demand for bitcoin.


If the crisis was lack of wise regulation, then we need a solution in 
which all transactions are, like paypal transactions and the various 
cell phone money schemes, rendered visible to authority and traceable.


If the crisis was immoral and corrupt regulation, with politicians 
directing money to voting blocks and regulators spinning in the 
revolving door between government and banks, and often changing their 
hats without even changing their offices, wearing a regulator hat at the 
same desk where a short time before they had worn a banker hat, then we 
need a more cypherpunkish solution - such as bitcoin, and there is 
customer demand for a more cypherpunkish solution.

___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Digital cash in the news...

[lodewijk andré de la porte]

I get back from vacation and suddenly my inbox is filled with
misconceptions.

While this is supossed to be a fairly technical mailinglist (about
cryptography) it seems clear many people haven't quite understood bitcoins'
workings.

Let me break it down:
* With a private/public key combination you can sign a message stating
you're transferring a certain fraction of value (a bitcoin is what we call
the 1 value).
* This message you sent to nodes within the bitcoin network.
* Each node checks whether or not your transaction can be executed and
compiles these correct transactions into a 'block'.
* Each node will try to find a proof-of-work for the block he made. Once he
has it, he can ship the block off towards everywhere (as many as possible
other nodes).
* Recieving nodes will check the block and when they accept it, put a
reference (hash) to it in their next block. The resulting chain of blocks is
called the block 'chain'
Now that the transaction is solidified in a block one can proof he has some
amount of money, by referencing a payment to him in the block.

How do the first bitcoins enter the system? By making a block one gets an
award. The amount given per award is getting steadily lower. If you're
thinking you can get rich quick by letting your computer solve blocks, think
again! There's only one block to be solved every ten minutes, if it goes to
fast the blocks will get harder, and there's a lot of people trying to solve
it, you're electricity will likely cost you more than solving blocks is
going to earn you. You're welcome to try though, solving a block makes
transactions happen.

What will happen when the awards are nearly gone? Then the total amount of
bitcoins will stay nearly the same. This'll happen after quite some years.
The total amount will be nearly 21 million bitcoins. The transactions will
be paid for by bounty set on every transaction. As long as someone is
willing to make the proof-of-work your transaction will end up in the block
chain and be made permanent.

That is basically the system. The whole
whitepaperisn't long or hard to
understand and I highly suggest reading it.

I know of only two (not dealbreaking) issues:
1. Transactions take time to happen (they are non-instant) (bank
transactions are much worse though).
2. Because of the deflation all coins gotten earlier were easier to get and
are now "worth" as much a block gotten now. I prefer deflation over
inflation and if this really takes of the earliest of adaptors really
deserved the money.


On the (geo)economical side I think this is the best that every happend to
the world. The bitcoin is quite violent right now, because there's still so
little value being traded with them. But that will sort out and after that
it'll just keep on getting more stable. "Regular" currency's (dollars,
euro's, yen, whatever) are only as stable as their backing organisations or
resource. Anything that goes up has got to fall, and bitcoins aren't
anything, not even air! Trade has always been based on "when I give you
this, what can I do with what you give me back?" and so, when people accept
a certain amount of bitcoins for something, bitcoins have use and thus
value.

There is a wonderfull elegance in something we can trade at no costs,
without any ability to cheat or adversely manipulate it's amount. Even
without saying who (exactly) we are!

It's propable that when you swap something as elementary as our
not-wonderfull money with this it'll give some turbulance. And as with
anything new, especially when it gives true freedom, people will get their
panty's all up in a bunch. Usually their arguments either rest on not
understanding what's going on, or claiming that this gives a security issue.
The first argument I'll always counter with knowledge and logic. For the
second argument I'd like to parphrase Benjamin Franklin: "He who sacrifices
essential freedom for safety, deserve neither.". Surely being able to own
and transfer what you own is an essential  freedom.


I'd prefer not going into political conversation on here but I think it far
too interesting not to have it at all.

-- Lodewijk "Lewis" Andre de la Porte

2011/6/13 Nico Williams 

> On Mon, Jun 13, 2011 at 10:50 AM, Nathan Loofbourrow 
> wrote:
> > The good old market played a role here too. There are lots of investors
> > whose risk profile dictates that they should be in "safe" investments,
> e.g.
> > pension funds and old people. With the interest rates held on the floor,
> and
> > Greenspan and Bernanke sitting on their chest, those safe investors
> started
> > to buy up mortgages, because mortgages were big dumb investments and
> > everyone paid their mortgage.
>
> You just proved the point: the market was distorted, with private
> actors acting _within_ the distorted market parameters.  Thus people
> who needed to make low-risk investments did make what _seemed_ like
> low-risk investments (after all, real estate had been a low-risk
> investme

Re: [cryptography] Digital cash in the news...

[Jeffrey Walton]

On Mon, Jun 13, 2011 at 9:22 PM, James A. Donald  wrote:
>>> I was at ground zero of the crisis: Sunnyvale
>>> California.
>>>
>>> And every person I saw buying a seven hundred thousand dollar
>>> house was a cat eating no hablo english wetback with no
>>> regular job.
>
> On 2011-06-14 1:29 AM, Nico Williams wrote:
>>
>> First, there were plenty of middle class
>> (and better off) people who used their ever-increasing home values as
>> an ATM card.
>
> I checked foreclosures by suburb last time I had this argument:  Back then,
> in East Palo alto (Black and hispanic) ninety nine forclosures. In Palo Alto
> west of the freeway, (white upper middle class) one foreclosure.  Similarly
> for Cupertino (white and asian) and Gilroy (overwhelmingly hispanic)
>
> Therefore, middle class did not irresponsibly use their ever rising home
> values as an ATM card  Or if they did, they paid up, rather than being
> foreclosed upon - unless you count as middle class those hispanics with no
> regular job who were buying upper middle class housing.
>
>> Second, we
>>
>> don't need to use derogatory terms here.  There's a difference between
>> being polite and being PC,
>
> If someone mugged you, you were mugged by a non asian minority, probably
> black, and if someone failed to pay a toxic mortgage in the bay area, he is
> a non asian minority, probably hispanic.  The street crime problem is a race
> problem, and the financial crisis in America is a race problem.
>
> People who bought overpriced houses no money down in the Bay area were
> overwhelming non asian minority, and in the case of hispanics, conformed
> distinctively to stereotype.
>
> It is probable that they had no idea of the lies that were written on the
> loan application, which they could seldom read, so one can reasonably argue
> that the literate and frequently white loan officers were to blame, and the
> non white illiterates signing the papers were innocent ignorant dupes.  I
> suppose they often were.  But if innocent, also ignorant - thus
> stereotypical.  The guy who mugs you is usually a stereotypical black, and
> the guy who bought an expensive house no money down at the peak of the
> bubble and never made a payment is usually a stereotypical hispanic.
>
> Those crooked loan officers were frequently white, and those crooked bankers
> were all white.  But the guys who borrowed the money and never made payment
> are not white, and are for the most part Hispanic, and for the most part,
> stereotypical Hispanic.
On the east cost (Baltimore, MD), I know of three families (neighbors
of friends) who purchased and were later foreclosed upon. All were
caucasian, so I'm not sure "are for the most part Hispanic" is an
appropriate characterization.

Jeff
___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Digital cash in the news...

[James A. Donald]

On 2011-06-14 1:50 AM, Nathan Loofbourrow wrote:

After a while you run out of big dumb mortgages, and we did. So the pressure
was on to create more of them. Once everyone has a mortgage, or maybe two,
you start lending to folks with a risk profile that wasn't so hot anymore.


This happened in commercial real estate, which also got bubbled, and 
also got falling credit standards - yet no crisis in commercial real 
estate.  Developers went bust, and financiers forclosed, sold the 
properties for markedly less than loan value.  And that was that.  No 
crisis, no drama, no bailouts.


The difference was that with mortgages to individuals, (usually black or 
no hablo English individuals) the bank issued liar loans, or like 
Beverly Hills bank, got rated "Substantially non compliant with the CRA"

___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Digital cash in the news...

[James A. Donald]

I was at ground zero of the crisis: Sunnyvale
California.

And every person I saw buying a seven hundred thousand dollar
house was a cat eating no hablo english wetback with no
regular job.


On 2011-06-14 1:29 AM, Nico Williams wrote:

First, there were plenty of middle class
(and better off) people who used their ever-increasing home values as
an ATM card.


I checked foreclosures by suburb last time I had this argument:  Back 
then, in East Palo alto (Black and hispanic) ninety nine forclosures. 
In Palo Alto west of the freeway, (white upper middle class) one 
foreclosure.  Similarly for Cupertino (white and asian) and Gilroy 
(overwhelmingly hispanic)


Therefore, middle class did not irresponsibly use their ever rising home 
values as an ATM card  Or if they did, they paid up, rather than being 
foreclosed upon - unless you count as middle class those hispanics with 
no regular job who were buying upper middle class housing.


> Second, we

don't need to use derogatory terms here.  There's a difference between
being polite and being PC,


If someone mugged you, you were mugged by a non asian minority, probably 
black, and if someone failed to pay a toxic mortgage in the bay area, he 
is a non asian minority, probably hispanic.  The street crime problem is 
a race problem, and the financial crisis in America is a race problem.


People who bought overpriced houses no money down in the Bay area were 
overwhelming non asian minority, and in the case of hispanics, conformed 
distinctively to stereotype.


It is probable that they had no idea of the lies that were written on 
the loan application, which they could seldom read, so one can 
reasonably argue that the literate and frequently white loan officers 
were to blame, and the non white illiterates signing the papers were 
innocent ignorant dupes.  I suppose they often were.  But if innocent, 
also ignorant - thus stereotypical.  The guy who mugs you is usually a 
stereotypical black, and the guy who bought an expensive house no money 
down at the peak of the bubble and never made a payment is usually a 
stereotypical hispanic.


Those crooked loan officers were frequently white, and those crooked 
bankers were all white.  But the guys who borrowed the money and never 
made payment are not white, and are for the most part Hispanic, and for 
the most part, stereotypical Hispanic.


___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Digital cash in the news...

[James A. Donald]

On 2011-06-13 11:55 PM, Ian G wrote:

Um, Adam, that's the very definition of a pyramid scheme :)

No-one need lose as long as the size of the user base grows, long term!


If bitcoin stabilizes, no one loses.  If a pyramid scheme stabilizes, 
last to invest loses.


___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Digital cash in the news...

[John Levine]

>> Now I find I can exchange a little over five bitcoins for 
>> a �50 Amazon gift certificate that Amazon seems happy to 
>> credit to my account.

>Your example is about two actors: Amazon and BitCoin, acting within small
>amounts of goods, services and issued currency.

No, it's not.  There's someone who will trade you Amazon gift
certificates for bitcoins.  He prices the bitcoins at the market rate,
planning to make his profit from the Amazon affiliate commission, and
presumably whatever price increase he gets so long as the bitcoin
bubble continues to inflate.  Amazon neither buys nor sells bitcoins.

I still am not aware of anything you can actually buy for bitcoins (as
opposed to trading them for various kinds of real and fake money)
other than drugs.

R's,
John

___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

[cryptography] Crypto-economics metadiscussion

[Marsh Ray]

I 'aint no self-appointed moderator of this list and I do find the 
subject of economics terribly interesting, but maybe it would make sense 
to willfully confine the scope of our discussion of Bitcoin and other 
virtual currencies to the crypto side of it.


This list's previous incarnation had high quality posts but it seems we 
burned out the moderator. Perhaps if we keep the discussion well focused 
we won't bury the expert crypto discussion and we'll even attract more 
professionals.


There are certainly many forums where the economic side of Bitcoin and 
the housing market is being debated with gusto, but very few places to 
get into the bits-and-bytes of crypto theory and implementation.


Alternative opinions and chirping crickets both welcome.

- Marsh
___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Digital cash in the news...

[Nico Williams]

On Mon, Jun 13, 2011 at 10:50 AM, Nathan Loofbourrow  wrote:
> The good old market played a role here too. There are lots of investors
> whose risk profile dictates that they should be in "safe" investments, e.g.
> pension funds and old people. With the interest rates held on the floor, and
> Greenspan and Bernanke sitting on their chest, those safe investors started
> to buy up mortgages, because mortgages were big dumb investments and
> everyone paid their mortgage.

You just proved the point: the market was distorted, with private
actors acting _within_ the distorted market parameters.  Thus people
who needed to make low-risk investments did make what _seemed_ like
low-risk investments (after all, real estate had been a low-risk
investment for decades in the U.S.), but actually were not just
high-risk, but bound to fail.

You can blame the derivative sinners (pun not intended) all you like,
but there's an original sin here.  Everyone else was either fooled
into sinning, peer-pressured into it, or outright forced, and though
there surely were some who understood what was happening and sought to
profit from it, you can hardly blame them either -- we all do
something of the sort (if you see inflation coming and manage your
money accordingly, are you ripping off all those who can't or don't
know to do anything about inflation? and if so, are you a terrible
person for it?).

> After a while you run out of big dumb mortgages, and we did. So the pressure
> was on to create more of them. Once everyone has a mortgage, or maybe two,
> you start lending to folks with a risk profile that wasn't so hot anymore.
> The whole tranching process masked the fact that this was happening because
> you could still issue AAA bonds out of these and everyone bought in.
> tl;dr: everybody gets to wear a hat that says "dummy", whether private,
> public or individual.

The whole tranching thing was almost brilliant, and would have worked
out fine (securitized mortgages from the 80s seem to have done fine,
no?) if there had been no bubble (but in a bubble the securitization
helped it along), and if all the issues in tracking the underlying
loans (and thus pricing the securities) had been worked out correctly.

> ObCrypto: sorry, got nothing.

Yeah, well, we need a sub-list for OT discussions.  At Sun we used to
have lists with sub-lists named the same + a "-extra" suffix, where
people who wanted to participate in these sorts of long, flame
war-ish, OT discussions could.

Nico
--
___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Digital cash in the news...

[Nathan Loofbourrow]

On Mon, Jun 13, 2011 at 8:29 AM, Nico Williams wrote:

>
> I particularly agree that CRA and Frannie primarily set in motion the
> market dynamic that led to either the bubble itself or its ultimate
> size, or both.  There's straightforward evidence: total up the amount
> in securities sold by Frannie and the amount they were left holding
> and the amount pumped in by the feds, and you're up to on the order of
> $1 trillion, which is a large portion of the losses in the bubble's
> popping.  Of course, the losses have been larger than $1 trillion
> (because the $1 trillion provided the necessary momentum to get the
> bubble inflating and stay inflating, but much more liquidity flowed
> from elsewhere so as to not miss out on the "opportunity"), so one has
> to consider whether Frannie was along for the ride in a bubble that
> wasn't their fault, or whether Frannie caused the bubble.  But any
> time you have a government taking such enormously distorting actions
> it's difficult to argue that they couldn't have been the cause of the
> crash -- one has to be suspicious of artificial market distortions.
>

The good old market played a role here too. There are lots of investors
whose risk profile dictates that they should be in "safe" investments, e.g.
pension funds and old people. With the interest rates held on the floor, and
Greenspan and Bernanke sitting on their chest, those safe investors started
to buy up mortgages, because mortgages were big dumb investments and
everyone paid their mortgage.

After a while you run out of big dumb mortgages, and we did. So the pressure
was on to create more of them. Once everyone has a mortgage, or maybe two,
you start lending to folks with a risk profile that wasn't so hot anymore.
The whole tranching process masked the fact that this was happening because
you could still issue AAA bonds out of these and everyone bought in.

tl;dr: everybody gets to wear a hat that says "dummy", whether private,
public or individual.

ObCrypto: sorry, got nothing.

n
___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Digital cash in the news...

[Nico Williams]

On Mon, Jun 13, 2011 at 6:03 AM, James A. Donald  wrote:
> On 2011-06-13 3:12 PM, Randall Webmail wrote:
>> That's right: POOR PEOPLE caused the Current
>> Unpleasantness!
>
> Yes they did.  I was at ground zero of the crisis: Sunnyvale
> California.
>
> And every person I saw buying a seven hundred thousand dollar
> house was a cat eating no hablo english wetback with no
> regular job.

I agree with much else of what you wrote in your post, but I take
issue with two things here.  First, there were plenty of middle class
(and better off) people who used their ever-increasing home values as
an ATM card.  The stories I've seen are hair-raising.  Second, we
don't need to use derogatory terms here.  There's a difference between
being polite and being PC, such as that PC involves choice of ideas,
not just choice of words.

I particularly agree that CRA and Frannie primarily set in motion the
market dynamic that led to either the bubble itself or its ultimate
size, or both.  There's straightforward evidence: total up the amount
in securities sold by Frannie and the amount they were left holding
and the amount pumped in by the feds, and you're up to on the order of
$1 trillion, which is a large portion of the losses in the bubble's
popping.  Of course, the losses have been larger than $1 trillion
(because the $1 trillion provided the necessary momentum to get the
bubble inflating and stay inflating, but much more liquidity flowed
from elsewhere so as to not miss out on the "opportunity"), so one has
to consider whether Frannie was along for the ride in a bubble that
wasn't their fault, or whether Frannie caused the bubble.  But any
time you have a government taking such enormously distorting actions
it's difficult to argue that they couldn't have been the cause of the
crash -- one has to be suspicious of artificial market distortions.

> [...]
>
> The CRA drives the climate of opinion in the entire mortgage
> industry. If you wanted to be able to buy other banks, you
> had to play ball.
>
> Practically everybody did. Out of the thousands of banks with
> federal CRA Performance Evaluations, 496 got the highest
> rating of Outstanding, while only five dared to be in
> “Substantial Noncompliance”.

Exactly.  Conformity was enforced, and it wasn't all that hard.
"Look, you have to make bad loans.  Yes, we know that's insane, but
here's the deal: you package them up and sell them immediately, and if
you can't find a buyer in the market, well, that's what Frannie's here
for, they are the buyer of last resort.  So go on, make bad loans
without fear!"  The rest follows.  Though the bargain was never that
explicit.  Liar loans?  Pfeh.  Of course you'll have liar loans in
such an environment, but it hardly gets the government off the hook
that their actions had the consequences that people did predict (well,
I seem to remember arguments in 1992 and 1999 about the wisdom of
these policies -- it's almost certain that there were cassandras).

> Over time, the madness infects the entire culture of finance,
> as the government labels the prudent bankers automatic losers
> in the great game of acquisitions.

It wasn't just acquisitions.  If you needed capital for anything and
your returns were low relative to the rest of the game-playing
industry, then you lost out.  In order to stay competitive when
looking for capital you had to stay competitive in terms of returns,
which could only happen (while the bubble was inflating) if you
participated in the bubble.  This shows that the market distortion
needed to get and keep the bubble going didn't have to be all that
large because there was a leveraging effect in the industry.

Nico
--
___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Digital cash in the news...

[Adam Back]

Bitcoin does not have to end with the pyramid scheme outcome - where it
stalls and all those still holding any lose - so long as there remain people
willing to exchange goods for bitcoin after the dust has settled.

Anyway my point is even if the deployment phase is a wild ride, with some
winners and some late losers who bought in above the final stable value, so
long as a stable value results at the end, I dont see that as a big problem.

Its not like we havent had bubbles and instability in various phases of any
other forms of money or assets.

If you take out the speculation, currently with people minting coins until
they get to 21 million coins that would be inflation (limited inflation due
to the mining cost); but also that more people are joining is deflationary
(less coins per person).  Then there is supply and demand - supply from
minting (so long as the sell price is above minting cost), supply from
people cashing out, and demand from people buying in.  Cashing out and
buying in maybe for trading or speculation.

Once the 21 million coins are created bitcoin would remain deflationary
during the next phase as until the user base grows to saturation.  Once
bitcoin grows to saturation, the remaining deflation would be limited by the
underlying population and economic growth.  That might be workable rate of
deflation.

Adam

On Mon, Jun 13, 2011 at 11:55:38PM +1000, Ian G wrote:

On 13/06/11 5:54 PM, Adam Back wrote:

Bitcoin is not a pyramid scheme, and doesnt have to have the collapse and
late joiner losers. If bitcoin does not lose favor - ie the user base grows
and then maintains size of user base in the long term, then no one loses.


Um, Adam, that's the very definition of a pyramid scheme :)

No-one need lose as long as the size of the user base grows, long term!

So everyone is incentivised to bring in new victims^H^H^H^H^H^H users :P

That's why they're illegal, typically.


I think in the current phase the deflation (currency increasing in value)
helps increase interest and number of users.


Um, yeah, whatever.  Look, whatever you do, don't tell anyone of your 
friends or family to invest in it.



Say that in the next phase bitcoin stops rapid expansion and reaches some
stable number of users, the deflationary period stops, and the remaining
users use it for transactions only (not speculation). I dont see the losers
in that scenario.


No, but the scenario is incomplete:  Those speculating on an increase 
in value will realise it has reached stability.  So they'll sell.  
Which will cause a reduction in value.  Which will cause a run, as 
those that didn't understand the mechanics of a pyramid scheme get 
their rude lesson.



However. Unless the laws of financial conservation have been repealed
by the design, those who follow have to invest a lot and come out with
less...




iang

___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Digital cash in the news...

[Ian G]

On 13/06/11 5:54 PM, Adam Back wrote:

Bitcoin is not a pyramid scheme, and doesnt have to have the collapse and
late joiner losers. If bitcoin does not lose favor - ie the user base grows
and then maintains size of user base in the long term, then no one loses.


Um, Adam, that's the very definition of a pyramid scheme :)

No-one need lose as long as the size of the user base grows, long term!

So everyone is incentivised to bring in new victims^H^H^H^H^H^H users :P

That's why they're illegal, typically.


I think in the current phase the deflation (currency increasing in value)
helps increase interest and number of users.


Um, yeah, whatever.  Look, whatever you do, don't tell anyone of your 
friends or family to invest in it.



Say that in the next phase bitcoin stops rapid expansion and reaches some
stable number of users, the deflationary period stops, and the remaining
users use it for transactions only (not speculation). I dont see the losers
in that scenario.


No, but the scenario is incomplete:  Those speculating on an increase in 
value will realise it has reached stability.  So they'll sell.  Which 
will cause a reduction in value.  Which will cause a run, as those that 
didn't understand the mechanics of a pyramid scheme get their rude lesson.



However. Unless the laws of financial conservation have been repealed
by the design, those who follow have to invest a lot and come out with
less...




iang
___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

[cryptography] Is BitCoin a triple entry system?

[Ian G]

On 13/06/11 12:56 PM, James A. Donald wrote:

On 2011-06-12 8:57 AM, Ian G wrote:

I wrote a paper about John Levine's observation of low knowledge, way
back in 2000, called "Financial Cryptography in 7 Layers." The sort of
unstated thesis of this paper was that in order to understand this area
you had to become very multi-discipline, you had to understand up to 7
general areas. And that made it very hard, because most of the digital
cash startups lacked some of the disciplines.


One of the layers you mention is accounting.


Yes, so back to crypto, or at least financial cryptography.

The accounting layer in a money system implemented in financial 
cryptography is responsible for reliably [1] holding and reporting the 
numbers for every transaction and producing an overall balance sheet of 
an issue.


It is in this that BitCoin may have its greatest impact -- it may have 
shown the first successful widescale test of triple entry [2].


Triple entry is a simple idea, albeit revolutionary to accounting.  A 
triple entry transaction is a 3 party one, in which Alice pays Bob and 
Ivan intermediates.  Each holds the transaction, making for triple copies.


To make a transaction, Alice signs over a payment instruction to Bob 
with her public-key-based signature [3].  Ivan the issuer then packages 
the payment request into a receipt, and that receipt becomes the 
transaction.


This transaction is digitally signed by multiple parties, including at 
least one independent party [4].  It then becomes a powerful evidence of 
the transaction [5].


The final receipt *is the entry*.  Then, the *collection of signed 
receipts* becomes the accounts, in accounting terms.  Which collection 
replaces ones system of double entry bookkeeping, because the single 
digitally signed receipt is a better evidence than the two entries that 
make up the transaction, and the collection of signed receipts is a 
better record than the entire chart of accounts [6].


A slight diversion to classical bookkeeping, as replacing double entry 
bookkeeping is a revolutionary idea.  Double entry has been the bedrock 
of corporate accounting for around 700 years, since documentation by a 
Venetian Friar named Luca Pacioli.  The reason is important, very 
important, and may resonate with cryptographers, so let's digress to there.


Double entry achieves the remarkable trick of separating out mishaps 
from frauds.  The problem with single entry (what people do when making 
lists of numbers and adding them up) is that the person can leave off a 
number, and no-one is the wiser [7].  We can't show the person as either 
a bad bookkeeper or as a fraudulent bookkeeper.  This achilles heel of 
primitive accounting meant that the bookkeeping limited the business to 
the size with which it could maintain honest bookkeepers.


Where, honest bookkeepers equals family members.  All others, typically, 
stole the boss's money.  (Family members did too, but at least for the 
good of the family.)  So until the 1300s and 1400s, most all businesses 
were either crown-owned, in which case the monarch lopped off the head 
of any doubtful bookkeeper, *or* were family businesses.


The widespread adoption of double-entry through the Italian trading 
ports led to the growth of business beyond the limits of family.  Double 
entry therefore was the keystone to the enterprise, it was what created 
the explosion of trading power of the city states in now-Italy [8].


Back to triple entry.  The digitally signed receipt dominates the two 
entries of double entry because it is exportable, independently 
verifiable, and far easier for computers to work with.  Double entry 
requires a single site to verify presence and preserve resiliance, the 
signed receipt does not.


There is only one area where a signed receipt falls short of complete 
evidence and that is when a digital piece of evidence can be lost.  For 
this reason, all three of Alice, Bob and Ivan keep hold of a copy.  All 
three combined have the incentive to preserve it;  the three will police 
each other.


Back to BitCoin.  BitCoin achieves the issuer part by creating a 
distributed and published database over clients that conspire to record 
the transactions reliably.  The idea of publishing the repository to 
make it honest was initially explored in Todd Boyle's netledger design.


We each independently converged on the concept of triple entry.  I 
believe that is because it is the optimal way to make digital value work 
on the net;  even when Nakomoto set such hard requirements as no 
centralised issuer, he still seems to have ended up at the same point: 
Alice, Bob and something I'll call Ivan-Borg holding single, replicated 
copies of the cryptographically sealed transaction.


With that foundation, we can trade.




Recall that in 2005
November, it became widely known that toxic assets were toxic.


In 2005, the SEC looked at my triple entry implementation, and


 From late in 2005 to late in 2007, it

Re: [cryptography] Nothing to do with digital cash in the news...

[James A. Donald]

On 2011-06-13 3:33 PM, John Levine wrote:

Until very late in the bubble, Fanny and Freddy bought only
conventional prime fixed rate loans, so it was roaring along without
their help


In 1992, Fanny and Freddy got tasked with affordable housing for the 
poor, and immediately dropped their standards.  It was predicted at the 
time that this would lead to disaster.


Fannie and Freddy started buying subprime loans in 1997, a further major 
drop in their standards.  Was it roaring along in 1997?


, and the CRA has been around since 1977,

The CRA was turned from a minor irritation to Frankenstein's monster in 
1992, which is when no hablo english cat eating wetbacks started buying 
expensive houses.


In 2000 The National Community Reinvestment Coalition boasted about the 
early 1990s change in the CRA from toothless to lucrative:


“Lenders and community organizations have negotiated $1.09
trillion in CRA dollars from 1992 to 2000. In contrast, $8.8
billion was negotiated from 1977 through 1991.”

And guess what.  One trillion was about the amount of money pissed away.
___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Digital cash in the news...

[James A. Donald]

On 2011-06-13 3:12 PM, Randall Webmail wrote:
> That's right: POOR PEOPLE caused the Current
> Unpleasantness!

Yes they did.  I was at ground zero of the crisis: Sunnyvale
California.

And every person I saw buying a seven hundred thousand dollar
house was a cat eating no hablo english wetback with no
regular job.

(Well I don't actually know that they ate cats - that is just
stereotyping, but they were no hablo english with no regular
job.)

> The people who pushed the Liar Loans and the alleged people
> who packaged those into securities and the alleged people
> who gave those securities AAA ratings and the alleged
> people who sold those AAA securities and the alleged people
> who bought those AAA securities and so on are completely
> blameless.

Those few banks that did not issue liar loans, for example the Bank of 
Beverly hills, got rated as "Substantially noncompliant with the 
Community Reinvestment Act", because of "No use of innovative or 
flexible lending products"


The major source of dud loans to deadbeats was Fannie and
Freddy, which were acting to please their political
constituency but the major private source was Washington
Mutual.

Washington Mutual sincerely believed that pissing away 375
billion on no hablo english cat eating wetbacks was God's
work:

 Porter says that Washington Mutual takes the CRA
 very seriously. But he adds the bank regards the
 CRA as a floor rather than a ceiling. He says the
 company, and its employees, want to surpass the
 regulatory standard for institutions to meet the
 credit needs of their communities. Porter points
 out, for instance, that the bank's $375-billion,
 10-year lending commitment was not necessarily
 dictated by the CRA. ‘It was good from the
 company's perspective,’ he says. ‘It was good from
 the community perspective, and it actually gives us
 a higher bar that we want to achieve.’

 "Helping to build strong, vibrant communities
 wherever Washington Mutual does business is integral
 to the company’s long-term strategy. The Community
 and External Affairs Division oversees all community
 investment and development activities to ensure that
 Washington Mutual fulfills its community goals in
 the most strategic way possible."

And proof that they really and truly believed is that they
did not dump ever single one of these crap loans as fast as
possible.  Although they securitized a lot and dumped a lot
of them on wall street, they kept a lot.

Steve Sailer analyses what went wrong:

Say there are two banks, WaMu and Scrooge-Potter BanCorp. The
latter is owned by Ebenezer Scrooge of Charles Dickens’ A
Christmas Carol and Mister Potter of Frank Capra’s It’s a
Wonderful Life. While WaMu is beloved for lending to anybody
with a pulse, Scrooge-Potter BanCorp is widely loathed for
taking a dim view of lending money to likely deadbeats.

They both would like to buy George Bailey’s Bailey Building
and Loan Association. ACORN and the National Community
Reinvestment Coalition announce they will protest
vociferously against regulatory approval of the merger unless
the winner pledges to make $50 billion in minority and low
income loans.

Fearing a debacle of defaults, Scrooge-Potter BanCorp issues
a two-word press release: “Bah, humbug”. And it drops out of
the bidding.

WaMu announces: “Well, heck, we’ll promise to lend $55
billion.”

In fact, because Scrooge-Potter realized its quest was
hopeless, WaMu got Bailey Building and Loan for less than it
would have paid if the government wasn’t biased in favor of
imprudent bankers. This gives WaMu more money to pursue more
targets.

Lather, rinse, and repeat. The CRA means that WaMu gets big
while Scrooge-Potter stays small.

Consider the indirect effects on Scrooge-Potter BanCorp. Who
would want to go to work for a bank that can’t make
acquisitions because it won’t play nice with the government
on CRA? Scrooge-Potter can’t buy anybody, it can only be
bought. So, how’s your job security at Scrooge-Potter
looking? Wouldn’t it make more sense to go work for WaMu
instead?

The CRA drives the climate of opinion in the entire mortgage
industry. If you wanted to be able to buy other banks, you
had to play ball.

Practically everybody did. Out of the thousands of banks with
federal CRA Performance Evaluations, 496 got the highest
rating of Outstanding, while only five dared to be in
“Substantial Noncompliance”.

The biggest noncomplier: First Bank of Beverly Hills. It had
the kind of business strategy that you’d expect from a bank
with that name: take in deposits from rich people and make
loans to big real estate developers outside Los Angeles.
Sensing the popping of the Housing Bubble coming, it was
pulling it its horns when the government evaluated it. The
feds didn’t like that. (You can read the government’s report
http://www2.fdic.gov/crapes/2007/32069_071001.pd

Re: [cryptography] Digital cash in the news...

[Danilo Gligoroski]

Nicholas Bohm write:

> 
> Now I find I can exchange a little over five bitcoins for 

> a £50 Amazon gift certificate that Amazon seems happy to 

> credit to my account.




I see the example of an institution (organization, company, entity, ...)
willing to happily credit the current value of *whatever currency* with
*concrete products (goods)* or *concrete services* is the best example how
and why *that currency* can become a trade tool for exchanging the goods as
well as services.

 

 

Your example is about two actors: Amazon and BitCoin, acting within small
amounts of goods, services and issued currency.

 

 

But there is another example with two other actors that are playing the
currency spiral game of trust with HUGE, HUGE amounts: I am talking about
China and the US Federal Reserve System. The amounts are in trillions of
dollars, issued by Federal Reserves, and are happily (oh, maybe lately not
that happily) accepted by China.

 

 

Now, instead of Amazon, if we start to see similar Chinese entities (but not
necessarily just Chinese, maybe some of the BRIC countries) that will be
happy to credit the BitCoins with concrete products and services, then
BitCoin as a trade tool for exchanging goods and services will probably
survive in the next period.

 

 

Or, seeing the latest Chinese-made crypto products like the latest ZUC
portfolio of crypto primitives for the new 4G standard, instead of BitCoin,
I expect to see a BitYuan.

 

 

Regards,

Danilo!

 

___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Digital cash in the news...

[Paul Crowley]

On 13/06/11 10:31, James A. Donald wrote:

The difference was Fannie, Freddie, and the CRA.


This is entirely off topic. Please drop it.
--
  __
\/ o\ Paul Crowley, p...@ciphergoth.org
/\__/ http://www.ciphergoth.org/
___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Digital cash in the news...

[James A. Donald]

On 2011-06-13 2:57 PM, Nico Williams wrote:

I don't think it's fair to blame private financial
institutions for the ill-effects of an ill-advised government plan to
subsidize housing ownership by individuals.  Without Frannie, CRA, or
anything of the sort I don't think we'd have seen the degree of
financialization of housing that we saw, meaning that we wouldn't have
seen the home mortgage credit growth that drove the housing bubble,
thus neither the bubble nor the crash.  (Well, bubbles can happen
without the help of the government, so let's say that the likelihood
of such an immense bubble would have been pretty low without Frannie
and CRA).


All the bad things the private sector did, it also did with commercial 
real estate.  But the commercial real estate bubble did not cause a 
massive crisis.  A lot of commercial real estate loans went bad. 
Financiers ate them.  That was that.


The difference was Fannie, Freddie, and the CRA.
___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Digital cash in the news...

[James A. Donald]

On 2011-06-13 2:50 PM, John Levine wrote:

But that really has nothing to do with the crypto part.  You can have
crypto out the wazoo, and it's worth nothing unless there's an issuer
in meatspace who will accept your crypto coins, cancel them, and hand
you the agreed amount of money.


But clearly, bitcoins are worth something.  Maybe that is only a bubble, 
but then federal reserve dollars are also only a bubble.

___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Digital cash in the news...

[Meredith L. Patterson]

On Mon, Jun 13, 2011 at 6:50 AM, John Levine  wrote:
> PS: For anyone who wants a crypto currency backed by gold, that's
> functionally equivalent to a gold ETF, of which there are several,
> such as ticker symbols IAU, GLD, GTU, SGOL, and AGOL.  They do what
> they do perfectly adequately, but they are in no sense currency.
> Bubble sceptics can trade put options on them.  Too bad there's no
> options on bitcoins.

There already are options on bitcoins. #bitcoin-otc [1] nominally
supports them in its order book, though I see little use so far [2].
Apparently someone wrote a put for 100BTC at a strike price of
$0.75/BTC with a 1.50BTC premium two months ago, maturing 31 May 2011
[3]; the option did in fact sell but I have no idea whether it was
exercised. Bitcoin calls have been around on the forum since at least
January [4], complete with risk reversal strategies ([5] is a textbook
example of a collar though not a zero-premium one).

[1] http://www.bitcoin-otc.com
[2] http://bitcoin-otc.com/vieworderbook.php?notes=option
[3] 
http://www.bitcoinmoney.com/post/4585101363/first-bitcoin-put-option-contract
[4] http://forum.bitcoin.org/?topic=2986.0
[5] http://forum.bitcoin.org/index.php?topic=2986.msg41580#msg41580

Cheers,
--mlp
___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography

Re: [cryptography] Digital cash in the news...

[Adam Back]

Bitcoin is not a pyramid scheme, and doesnt have to have the collapse and
late joiner losers.  If bitcoin does not lose favor - ie the user base grows
and then maintains size of user base in the long term, then no one loses.

I think in the current phase the deflation (currency increasing in value)
helps increase interest and number of users.

Say that in the next phase bitcoin stops rapid expansion and reaches some
stable number of users, the deflationary period stops, and the remaining
users use it for transactions only (not speculation).  I dont see the losers
in that scenario.

Adam

However.  Unless the laws of financial conservation have been 
repealed by the design, those who follow have to invest a lot and 
come out with less...

___
cryptography mailing list
cryptography@randombit.net
http://lists.randombit.net/mailman/listinfo/cryptography