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

[coderman]

On Fri, Jun 17, 2011 at 4:50 AM, Peter Gutmann
 wrote:
>
> Is it a sign that your e-Monopoly-money has arrived when trojans start
> targeting it?
>
> http://www.net-security.org/malware_news.php?id=1752
>
> (My guess is that since trojans already steal everything they can, including
> lots of stuff with no obvious value, that the authors just added Bitcoin
> wallets because they could).

i checked this out when it dropped. it was delivered in haste, and not
something overly impression (like a pro kit re-tailored for bitcoin
wallets.)

the day before this dropped wallet encryption was released in the
official bitcoin client. the attackers had to rush deployment of this
malware before too many potential targets upgraded to encrypted
wallets (thus making them less accessible to attacker using this
method.)

the interesting aspect is how this following a significant crackdown
on the bitcoin.org forums and was sent as a mass phish via private
message to all the members.

i've pasted the content below. note that clicking on the image went to
a JPG/ directory which in turn sent the screensaver malware
payload that is not identified in most browsers as potentially
malicious (unlike .EXE or .COM, .BAT, .PDF, etc.)

once you click, it rather clumsily traversed the disk looking for the
first wallet.dat to deliver via an open relay to a drop box at
hotmail.

they'd clearly spent more time on the delivery aspects than on the
smarts within the wallet stealing code. as said, a rush job due to the
client update the day before.

waiting for the next trojan to target RPC port on running bitcoind's...

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

[Peter Gutmann]

Is it a sign that your e-Monopoly-money has arrived when trojans start
targeting it?

http://www.net-security.org/malware_news.php?id=1752

(My guess is that since trojans already steal everything they can, including
lots of stuff with no obvious value, that the authors just added Bitcoin
wallets because they could).

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

[Jeffrey Walton]

> On Sun, Jun 12, 2011 at 9:44 PM, James A. Donald  wrote:
>> On 2011-06-12 8:53 AM, Nico Williams wrote:
>> [SNIP]
>> Greece is going broke from too much vote buying.  Governments are reluctant
>> let Greece go broke, for fear of contagion.  So they lend the Greeks more
>> money, which is another form of contagion.
>>
MSNBC reports folks are rioting in Greece due to budget cuts, layoffs,
and higher taxes required to get receive money from the IMF. It seems
the citizens have rejected both the economists and politicians.
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Re: [cryptography] Digital cash in the news...

[James A. Donald]

On 2011-06-15 7:58 AM, Nico Williams wrote:

Uncivilized state actors will not give a damn about your crypto.  They
will torture you, your friends, your family.


If they can find you.
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Re: [cryptography] Digital cash in the news...

[James A. Donald]

On 2011-06-15 7:58 AM, Nico Williams wrote:

Let's say you have an unbreakable code.


Which we do.


But there's still traffic
analysis, and even with onion routing and such, you don't know if your
peers are ratting you out,


If one of the mixers is my own, I know that that mixer is not ratting me 
out.


One valid mixer in the chain is sufficient to be a serious obstacle to 
the state.  Two is very serious obstacle.  And chances are that both I 
and the guy I am talking to are running our own mixers.



Do the same thought experiment regarding cryptographic coins if you
like.  The state could easily make it so insignificant amounts of
business gets transacted in a cryptographic coin that the state cannot
subvert or control.


I observe that a large part of the world's economy is run though virtual 
private networks running through tax haven islands.  Looks to me that 
the horse is already bolting.  Wealthy individuals and big corporations 
use transferable promises to pay by other wealthy individuals 
transferred over video conference as money, which hawala like money is 
difficult or impossible for the state to track.


So for the very rich, particularly wealthy Chinese businessmen located 
outside of China, the cypherpunk program is becoming real. 
Unfortunately, it is not becoming real for cypherpunks, who hoped that 
the white middle class would get in on it.  But *some* people are 
getting in on it.


Chinese are respectful of authority, and superficially compliant, but 
they have a long history of quiet evasion and subtle resistance, so are 
naturally inclined to cypherpunkish solutions.   The growth of China is 
in substantial part the growth of the economy mediated by virtual 
private networks.  Much of the Chinese economy, notably real estate 
development and mining, is transparent to the state and run by companies 
that legally Chinese, and Chinese in reality, but much of the Chinese 
economy, notably hi tech, is run by companies that are not legally 
Chinese, indeed their location is hard to find.


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

[Nico Williams]

On Tue, Jun 14, 2011 at 4:30 PM, StealthMonger
 wrote:
> Nico Williams  writes:
>
>> Crypto will NOT protect you from the state.
>
> Hmm?  Protection from the state is the very reason some of us are
> here.  Even Philip Zimmermann wrote twenty years ago [1]

In a pinch crypto will not protect you.

Let's say you have an unbreakable code.  But there's still traffic
analysis, and even with onion routing and such, you don't know if your
peers are ratting you out, or if the state has infiltrated the onion
to a sufficient degree to find out a bit of what you're up to.  And so
on.  Push comes to shove, the truth is that power still comes from the
barrel of a gun.

Do the same thought experiment regarding cryptographic coins if you
like.  The state could easily make it so insignificant amounts of
business gets transacted in a cryptographic coin that the state cannot
subvert or control.

We use crypto to protect ourselves from non-state actors and
insufficiently motivated, _civilized_ state actors.  That's it.  And
even regarding non-state actors, you still depend on the civil law
system administered by the state.  If there's no state then you have
to arm yourself to the teeth and be willing to fight.

Uncivilized state actors will not give a damn about your crypto.  They
will torture you, your friends, your family.  They may enslave you.
Ultimately they may kill you.  The trick regarding uncivilized state
actors is to stay under their radar, or to take advantage of such
somewhat civilized subset of their behaviors as might remain, and
ultimately to get rid of the uncivilized state actors (by emigration,
revolution, or just waiting until you get lucky and they civilize on
their own).

Civilized state actors granting you due process of law might also not
give a damn about your crypto (see, e.g., the UK, where you can be
compelled, under criminal penalties, to produce cryptographic keys).
They won't torture you, etcetera, but they might deprive you of your
freedom.

So: don't live in an uncivilized state (either civilize it or
emigrate), and then refrain from doing the sorts of things that might
cause even a civilized state to come down you like a ton of bricks
(i.e., refrain from committing crimes).  For added safety use crypto.

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

[StealthMonger]

-BEGIN PGP SIGNED MESSAGE-
Hash: SHA1

Nico Williams  writes:

> Crypto will NOT protect you from the state.

Hmm?  Protection from the state is the very reason some of us are
here.  Even Philip Zimmermann wrote twenty years ago [1]

   Why Do You Need PGP? ...  you may be doing something that you feel
   shouldn't be illegal, but is.

And the very title of David Chaum's 1985 paper was "Security without
Identification: Transaction Systems to Make Big Brother Obsolete" [2]


[1] pgpdoc1.txt

[2] CACM 28(10), October 1985

- -- 


 -- StealthMonger 
Long, random latency is part of the price of Internet anonymity.

   uinmyn: Is this anonymous browsing, or what?
   
http://groups.google.com/group/alt.privacy.anon-server/msg/59a1d785aaa19de5?dmode=source&output=gplain

   stealthmail: Hide whether you're doing email, or when, or with whom.
   mailto:stealthsu...@nym.mixmin.net?subject=send%20index.html


Key: mailto:stealthsu...@nym.mixmin.net?subject=send%20stealthmonger-key

-BEGIN PGP SIGNATURE-
Version: GnuPG v1.4.10 (GNU/Linux)
Comment: Processed by Mailcrypt 3.5.8+ 

iEYEARECAAYFAk33rcwACgkQDkU5rhlDCl7pewCgu4yV0M9oFI7k6Y9D/S652LZ7
SiAAn2dBV1uyDGSyrlgocHw5OueFr8xr
=Aqvn
-END PGP SIGNATURE-

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

[Nico Williams]

On Tue, Jun 14, 2011 at 4:17 AM, James A. Donald  wrote:
> On 2011-06-14 2:19 PM, Steven Bellovin wrote:
>> 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 question is, should we rely on cryptographic enforcement transactions,
> in which case bitcoin or something like it is a good idea, or state
> enforcement of transactions, in which case it is a bad idea.

That's the question?  No.  The question is: how can you not be embarrassed?

> The character of the transactions enforced by the state indicates that
> something like bitcoin is a good idea.

Utter nonsense.  Crypto will NOT protect you from the state.

> I am pretty sure that you would find any accurate depiction of those
> transactions racist and offensive.  Indeed, the reason people find it
> strangely difficult to accurately report what happened is because race was
> absolutely central to what happened.  The US government is throwing money at
> voter blocks defined by race, destroying the financial system in the
> process.  In other countries, the government is also using the banks to
> throw money at voter blocks, but for the most part not racially defined
> voter blocks.

You use racial epithets and racist theories based on generalization
from anecdotes, and won't address that when challenged.  How can you
expect to be taken seriously?

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

[James A. Donald]

On 2011-06-14 2:19 PM, Steven Bellovin wrote:

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 question is, should we rely on cryptographic enforcement 
transactions, in which case bitcoin or something like it is a good idea, 
or state enforcement of transactions, in which case it is a bad idea.


The character of the transactions enforced by the state indicates that 
something like bitcoin is a good idea.


I am pretty sure that you would find any accurate depiction of those 
transactions racist and offensive.  Indeed, the reason people find it 
strangely difficult to accurately report what happened is because race 
was absolutely central to what happened.  The US government is throwing 
money at voter blocks defined by race, destroying the financial system 
in the process.  In other countries, the government is also using the 
banks to throw money at voter blocks, but for the most part not racially 
defined voter blocks.


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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
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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!

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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





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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
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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.

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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
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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"

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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.


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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.


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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

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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
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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
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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
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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

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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
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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!

 

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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.
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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.
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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.

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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
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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...

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

[Nico Williams]

On Mon, Jun 13, 2011 at 12:12 AM, Randall  Webmail  wrote:
> That's right: POOR PEOPLE caused the Current Unpleasantness!  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.   POOR PEOPLE 
> caused the financial crisis!

Who said anything about poor people?  Just because CRA and Frannie
were sold partly as programs that benefit the poor doesn't mean that
was either the actual intention, or the effect.  The people who pushed
liar loans did it in large part because there were large incentives to
doing that, which were mostly a result of not playing with their own
nor their bosses' money, but with funny money, since no matter what
loans they made there was always a ready buyer in Frannie, backed with
a ready lender of last resort in the Fed.  Yes, people who made funny
loans committed sins, but they wouldn't have been able to (not in the
same scale anyways) without the larger, more original sin committed by
the politicians (who did it in the name of the poor, or whatever).  IF
Congress had created an above board $100 billion/year housing subsidy
for the poor, that wouldn't have led to a bubble, and it would have
helped the poor much more than the actual, hidden $100 billion/year
housing subsidy did.  If you care about the poor you won't defend CRA
and Frannie blindly.

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

[Randall Webmail]

From: "Nico Williams" 
To: noloa...@gmail.com
Cc: "Crypto discussion list" 
Sent: Monday, June 13, 2011 12:57:58 AM
Subject: Re: [cryptography] Digital cash in the news...

>Now, financial institutions clearly played a role, but mostly it was a
>fee-taking role (since they mostly passed mortgages through to
>Frannie), and it was a role they had to play (see CRA).  Some played a
>role in the securitization of lousy mortgages, but I'm not sure that
>they understood the systemic risk -- the securities' buyers certainly
>didn't, even though most were also financial institutions with
>sophisticated people in charge, so it's not too much of a stretch to
>think that this was all really just a necessary consequence of CRA and
>Frannie.  That's my theory anyways.

That's right: POOR PEOPLE caused the Current Unpleasantness!  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.   POOR PEOPLE caused the 
financial crisis!

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

[Nico Williams]

On Sun, Jun 12, 2011 at 11:28 PM, Jeffrey Walton  wrote:
> I recall Obama boasting: "My Administration is the only thing saving
> you from the pitchforks of the American people [sic]" at a banker's
> lunch after he took office. On the campaign trail, he received over 1M
> USD from Goldman Sachs alone. In this case, Obama took the bride money
> (err, PAC contributions) and provided political cover.
>
> If you game the Ticket Master system, you will be faced with a PATRIOT
> Act like rsponse from the US governemnt [1]. If you make a PAC
> contribution, you can crash the economy with impunity. Obama upset the
> balance of powers (the best I can tell, the SEC investigations have
> been laughable - civil fines, but no criminal prosecurtions), and I
> would love to see him spend the rest of his natural life in jail for
> conspiring with the economic terrorist who crashed the economy.

Perhaps it's because I earn some of my living from a financial
institution (but I doubt it, since I held this opinion back when I
didn't), but 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).

Now, financial institutions clearly played a role, but mostly it was a
fee-taking role (since they mostly passed mortgages through to
Frannie), and it was a role they had to play (see CRA).  Some played a
role in the securitization of lousy mortgages, but I'm not sure that
they understood the systemic risk -- the securities' buyers certainly
didn't, even though most were also financial institutions with
sophisticated people in charge, so it's not too much of a stretch to
think that this was all really just a necessary consequence of CRA and
Frannie.  That's my theory anyways.

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

[John Levine]

>We can therefore see that someone has to make that "worth" mean 
>something, so for this we need an "issuer" sometimes known as Ivan. 
>It's beyond the scope of a crypto list to discuss this in depth, but 
>typically Ivan would deposit $1 for every issued electronic dollar in 
>some bank account somewhere.

You're right, for a crypto currency to be credible in the long term,
it needs to be convertible into Real Money(tm), i.e., something you
can use to pay your taxes.  (That's the actual working definition of
money, by the way.)

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.  Or think about the ETF model I
suggested a few years ago, which provides a close approximation to
convertibility without requiring that the issuer be able to redeem
every individual coin on demand.

Regards,
John Levine, jo...@iecc.com, First Unitarian Society of Ithaca NY
Between 200 and 500 members, depending on who's counting

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.


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

[Nico Williams]

On Sun, Jun 12, 2011 at 11:06 PM, Nathan Loofbourrow  wrote:
> So a monetary authority is printing BitCoins and spending them on fiscal
> stimulus. In spite of that, money is entering the economy because as stores
> of value go, the alternatives aren't that great either. Reminds me of the US
> dollar.

Yes, exactly.  If you want stable money then you need either a natural
resource with naturally limited growth (e.g., gold) (and some other
features), or an artificially limited resource (e.g., paper money).
The latter is always susceptible to politically caused inflation.  Any
cryptographic coin based on proof of work is a disaster because of
Moore's law and because the "work" is wasted energy -- and energy,
you'll note, is a very precious resource.  Ergo, a cryptographic coin
needs to be based on trusted issuers (or something else I've not seen
before nor thought of), and that means, effectively, a fiat currency.
Crypto is NOT a solution to political problems; never has been, never
will be.

> I wonder whether BitCoin would have been nearly as successful if a demand
> for stores of stable value did not happen to be higher than they have been
> in a decade. If we were all rich on housing appreciation and stock
> speculation, BitCoin would be like the passbook savings account at the local
> bank paying a whopping 0.65%.

Here's a thought experiment: if the present value of all actual,
tangible property, things, capital (production and service capacity),
as well as less tangible things such as people, and institutions
-altogether, basically, a nation's patrimony- were far, far exceeded
by nominal value stored in money in banks and mattresses, would that
money really be worth all that much?  I suspect that the answer is
"no".  I suspect that the most valuable feature of money is not to
store value in the long-term, but to lubricate commerce, that is, to
enable transactions on a basis better than barter.

> But the only part of that that's about crypto is: crypto is hard, and you
> can get people to perform it on their computers if you pay them. Surprise,
> surprise. Bet you wish you'd thought of something *you* wanted people to
> employ thousands of computers to do that paid them money that doesn't even
> come out of your pocket. I don't know if Satoshi is rich from BitCoins, but
> if he made a bar bet that he could convince people to run billions of SHA256
> hashes a second without paying them even a nickel, he won himself a beer.

It's always possible to get some people to do things that are not in
their interest.  See various cults.  (Note: I'm not saying bitcoin is
a cult.)

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

[Jeffrey Walton]

On Sun, Jun 12, 2011 at 11:54 PM, Nico Williams  wrote:
> On Sun, Jun 12, 2011 at 10:34 PM, Jeffrey Walton  wrote:
>> I think Sparta had it right in this instance: put the public officials
>> on trial when their term is over, and make them accountable for their
>> actions. Its funny how those lessons were lost.
>
> Doesn't help.  The trials would be political trials, and it's all
> politics, which in its most naked form is "who has the guns," and next
> most is "who has the votes."  Truth is not dispositive in politics,
> sadly.
 I'd be willing to take a chance with "doesn't help" since we now have
"doesn't work" (or broken, or severly bent).

I recall Obama boasting: "My Administration is the only thing saving
you from the pitchforks of the American people [sic]" at a banker's
lunch after he took office. On the campaign trail, he received over 1M
USD from Goldman Sachs alone. In this case, Obama took the bride money
(err, PAC contributions) and provided political cover.

If you game the Ticket Master system, you will be faced with a PATRIOT
Act like rsponse from the US governemnt [1]. If you make a PAC
contribution, you can crash the economy with impunity. Obama upset the
balance of powers (the best I can tell, the SEC investigations have
been laughable - civil fines, but no criminal prosecurtions), and I
would love to see him spend the rest of his natural life in jail for
conspiring with the economic terrorist who crashed the economy.

Its nothing against Obama: I had high hopes for him. I had my fingers
crossed for him since he was not from the white, good ole' boy stock.
He has turned out to be no better than the rest of them.

Jeff

[1] http://www.wired.com/threatlevel/2010/11/wiseguys-plead-guilty/
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Re: [cryptography] Digital cash in the news...

[Nathan Loofbourrow]

Ian G wrote:

> The way to do this is a /contract/ which is a defined format of promise to
> deliver, date, consideration, etc.  You write that down in boring ascii:


To your point, each issued BitCoin is a contract -- well, the completion of
one, anyway. The contract states as follows:

"I have performed a task you have asked me (among many others) to perform.
That task is to certify the transaction log of BitCoin exchanges. Here is my
proof of work; now pay me."

If you were to argue that that task is currently overpaid, I would agree
with you; it has been heavily subsidized, to the tune of 50 bitcoins
generated by agreement that they have been issued. In spite of this
overpayment, the currency appears to be rising in value over the long term.

Fortunately, this subsidy wanes. It drops to 25 bitcoins, and then again,
and then again, until it drops to nothing. Signing the transaction log is
worth only what transactors voluntary choose to pay for the privilege of
having their transactions signed. Is that signature worth paying for? Well,
it prevents double spending, so probably, yes.

So a monetary authority is printing BitCoins and spending them on fiscal
stimulus. In spite of that, money is entering the economy because as stores
of value go, the alternatives aren't that great either. Reminds me of the US
dollar.

I wonder whether BitCoin would have been nearly as successful if a demand
for stores of stable value did not happen to be higher than they have been
in a decade. If we were all rich on housing appreciation and stock
speculation, BitCoin would be like the passbook savings account at the local
bank paying a whopping 0.65%.

But the only part of that that's about crypto is: crypto is hard, and you
can get people to perform it on their computers if you pay them. Surprise,
surprise. Bet you wish you'd thought of something *you* wanted people to
employ thousands of computers to do that paid them money that doesn't even
come out of your pocket. I don't know if Satoshi is rich from BitCoins, but
if he made a bar bet that he could convince people to run billions of SHA256
hashes a second without paying them even a nickel, he won himself a beer.

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

[Nico Williams]

On Sun, Jun 12, 2011 at 10:34 PM, Jeffrey Walton  wrote:
> I think Sparta had it right in this instance: put the public officials
> on trial when their term is over, and make them accountable for their
> actions. Its funny how those lessons were lost.

Doesn't help.  The trials would be political trials, and it's all
politics, which in its most naked form is "who has the guns," and next
most is "who has the votes."  Truth is not dispositive in politics,
sadly.
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Re: [cryptography] Digital cash in the news...

[Nico Williams]

On Sun, Jun 12, 2011 at 9:44 PM, James A. Donald  wrote:
> On 2011-06-12 8:53 AM, Nico Williams wrote:
>> A fiat currency with no capital controls and reasonably free
>> trade is probably the best currency system yet.  Details do matter
>> though.
>
> If operated by far sighted men with an eye for the long term - for example
> if operated by a hereditary monarchy.
>
> Operated by the current lot of crooks who can scarcely see as far as the
> next election ...

Clearly.  The nice thing about the U.S. was, and still might turn out
to be once the current statist episode is over, that its political
system didn't stray too far in the direction that so many democracies
have tended to in the 20th century.

> Fiat currencies are subject to wild gyrations, which gold was not.

Clearly, but at least as long as you have property rights and there's
no capital controls to speak of you can work around those gyrations
(really, long periods of low, but higher than gold inflation, followed
by short but sharp credit contractions, with occasional bouts of
hyperinflation, but with the degree of inflation being a political
problem, thus manageable in countries with institutions and political
traditions that value low inflation).

You might note that in the long run all fiat currencies will be
debased, but you might also note that in the long run all gold
standards tend to get abandoned.  The problem is democracy, which you
might remember is the worst form of government _but for all the
others_.

>> Which isn't to say it will
>>
>> continue, but if it doesn't, it won't be due to any flaws in this
>> currency system.)
>
> I would say that giving total power to the people who brought you
> affirmative action lending is a flaw.  The people operating the system are
> printing money to benefit cronies and voter blocks.

Let's not exaggerate, total power looks a bit different than what you
see here, so far.  Granted, it's getting there, but there's hints that
the ship of state might yet right itself, and if not, well, there's
not a lot of options (obcrypto: and crypto won't get you any real
protection).

> Greece is going broke from too much vote buying.  Governments are reluctant
> let Greece go broke, for fear of contagion.  So they lend the Greeks more
> money, which is another form of contagion.
>
> That governments keep bailing out Greece is a sign of weakness and
> fragility.  They fear that if Greece goes, then the next weakest government
> will go, and then if the next weakest goes, then the one after that, the
> dominos falling all the way to Washington.

The real issue in Europe is that if Greece (and Portugal, and Ireland,
...) default then most of the banking system in the rest of Europe
will be insolvent, which means that either they are allowed to fail,
and people are allowed to lose part or even most of their deposits, or
their debt (deposits) will have to be nationalized and monetized, all
in a credit contraction environment (deflation).  Either way real
wealth has been frittered away, destroyed, and no one wants to be the
one to tell the public that they are poorer, thus the game is to make
the process by which the loss of wealth becomes apparent take much
longer, which only delays real recovery, thus making things worse.

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

[Jeffrey Walton]

On Sun, Jun 12, 2011 at 10:44 PM, James A. Donald  wrote:
> On 2011-06-12 8:53 AM, Nico Williams wrote:
>>
>> A fiat currency with no capital controls and reasonably free
>> trade is probably the best currency system yet.  Details do matter
>> though.
>
> If operated by far sighted men with an eye for the long term - for example
> if operated by a hereditary monarchy.
>
> Operated by the current lot of crooks who can scarcely see as far as the
> next election ...
I think Sparta had it right in this instance: put the public officials
on trial when their term is over, and make them accountable for their
actions. Its funny how those lessons were lost.

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

[Ian G]

On 13/06/11 12:05 PM, James A. Donald wrote:

On 2011-06-13 9:26 AM, Ian G wrote:

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...


Financial conservation does not apply to money.


Right, not to money.  But it applies to value which was what earlier 
poster was talking about.  He had allegedly put small value in and got 
large value out.


In economics terms, although a monetary unit strives to be a store of 
value, sometimes it fails to do that.  Value being distinct from the 
price at which any particular monetary unit trades at.  (Monies tend to 
be better units of exchange, perhaps simply because we can do math these 
days, and they hold for at least instant trades.  And people tend to 
confuse the price with value.  And confuse money with value...)


The laws of economics are like gods.  You don't have to subscribe and 
obey them every day, nor sacrifice your children to them on a yearly 
schedule.  But you have to respect them and be careful not to anger them.


More on point for BitCoin, without a gesture towards the god of store of 
value -- some fundamental relationship to something that humans value -- 
then the unit flaunts itself at will, flying like Icarus as high as it 
feels.  As we can see, it flies skywards as the crowd rushes in (notice 
the upticks in media discussion), and it will collapse just as quickly 
when they rush out again.



If paper currency
collapses, and is replaced by gold, those who invest in bitcoin will
come out with nothing. If paper currency collapses, and is replaced by
bitcoin, they will come out with immense fortunes.

The market is at present rating the prospect of the world going to a
bitcoin standard rather than a gold standard at two chances in a
million, which seems reasonably conservative.


:)  I don't disagree, opinions on gold, etc, as exercises for the reader.

Back to crypto (soon).

How to do this properly?  Well, the simple way is to elect to denominate 
the unit in some alternate well understood other monetary unit.  So for 
example, the typical thing is to denominate in USD.  You have a field in 
the packets that says "USD" and each 1 is worth a dollar.  You have 
another field for however many of those, say 10.  Simple.


We can therefore see that someone has to make that "worth" mean 
something, so for this we need an "issuer" sometimes known as Ivan. 
It's beyond the scope of a crypto list to discuss this in depth, but 
typically Ivan would deposit $1 for every issued electronic dollar in 
some bank account somewhere.


A more complicated way is to /describe the value/ so for example also 
describe how your deposits weren't to be stolen.  Imagine that you 
overcame the obvious objections to the above by saying you were going to 
bury gold bricks in your backyard on your private island (as mentioned 
in some novels).  The way to do this is a /contract/ which is a defined 
format of promise to deliver, date, consideration, etc.  You write that 
down in boring ascii:


"I promise to bury one gram of gold
in my backyard at approx geoloc X,Y, and
promise to redeem that on presentation
of one electronic gold gram.  Etc etc."

*Now we get to the crypto*  How do you make that contract work in 
digital form?  Well, you have to /agree/ and you have to be /seen to 
agree/ by your holder-buyer-customer-user.  In detail, every time, 
unwavering, unforgiven.  So:


   * add in some details (elided here).
   * append your public key to the end of the document.
   * sign the document in cleartext using standard digital signature
 (OpenPGP works well, x509 can be easily hacked to do the same).
   * take a message digest of the resultant signed document.
   * stick the MD in every packet as the indicator of which contract.

Then, the act of making the first payment(s) of digital issuance 
includes your MD which includes your PK sig, which then all entangle 
into every subsequent payment.  This process creates an undefeatable 
chain of evidence over your contracted promise, as well as locking down 
a whole host of other details such as stopping anyone inserting false 
payments into the entangled hash sequence.


Hey presto, the cryptographic signature finally comes good as a 
describer of value, and makes payments really work.




iang

PS: google on Ricardian Contract for more.  It's an open concept.  It 
uses a sensible dollop of crypto over a base of classical governance.

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

[James A. Donald]

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


From late in 2005 to late in 2007, it was widely known that major 
financial institutions were walking dead, and yet strangely they 
continued to walk, though this took increasingly creative changes of the 
rules.


Today in 2011, there is still no audit that acknowledges that toxic 
assets were and are toxic.


While doubtless a good monetary system should embrace all these aspects 
of knowledge, our existing monetary system does not.


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

[James A. Donald]

On 2011-06-12 8:53 AM, Nico Williams wrote:

A fiat currency with no capital controls and reasonably free
trade is probably the best currency system yet.  Details do matter
though.



If operated by far sighted men with an eye for the long term - for 
example if operated by a hereditary monarchy.


Operated by the current lot of crooks who can scarcely see as far as the 
next election ...


Fiat currencies are subject to wild gyrations, which gold was not.

> Which isn't to say it will

continue, but if it doesn't, it won't be due to any flaws in this
currency system.)


I would say that giving total power to the people who brought you 
affirmative action lending is a flaw.  The people operating the system 
are printing money to benefit cronies and voter blocks.


Greece is going broke from too much vote buying.  Governments are 
reluctant let Greece go broke, for fear of contagion.  So they lend the 
Greeks more money, which is another form of contagion.


That governments keep bailing out Greece is a sign of weakness and 
fragility.  They fear that if Greece goes, then the next weakest 
government will go, and then if the next weakest goes, then the one 
after that, the dominos falling all the way to Washington.

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

[James A. Donald]

On 2011-06-12 6:13 AM, John Levine wrote:

Useful for something, but not useful for money.  I can't help but note
that the level of economic knowledge in the digital cash community is
pitifully low, and much of what people think they know is absurd.
(Anyone who thinks that a gold standard is better than what we have
now, or that the supply of gold is fixed in any but a purely
hypothetical sense, is either ignorant of economic history or shilling
for gold speculators.)


What we have now has been tried many times before, and failed many times 
before.


The gold standard has never suffered the kind of wild alarming 
fluctuations that fiat currencies routinely suffer.  Gold inflation was 
always very slow, and gold deflation was always very slow, possibly 
because people expected the value to remain stable, so in the event of 
deflation, disinvested in gold and increased their investment in other 
things, and on gold inflation, vice versa.


The most alarming gold deflation was the long depression, caused by the 
demonetization of silver and accompanying rise of the value of gold.  By 
modern standards, it was not even a recession.  The most alarming gold 
inflation was caused by the conquest of the new world, which resulted in 
inflation at about 1% per year for about a hundred years.


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

[James A. Donald]

On 2011-06-11 10:41 PM, Ian G wrote:

We expect money to be a store of value, among a few other things.
BitCoin has nothing in it that speaks to that goal, that I can see [0].
This anti-property would however make it more ideal for a bubble [1].


All money is a bubble.  The non monetary value of a bitcoin is exactly 
the non monetary value of a federal reserve dollar, which is to say, zero.


Gold has real non monetary value, but far less than its monetary value.

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

[James A. Donald]

On 2011-06-13 9:26 AM, Ian G wrote:

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...


Financial conservation does not apply to money.  If paper currency 
collapses, and is replaced by gold, those who invest in bitcoin will 
come out with nothing.  If paper currency collapses, and is replaced by 
bitcoin, they will come out with immense fortunes.


The market is at present rating the prospect of the world going to a 
bitcoin standard rather than a gold standard at two chances in a 
million, which seems reasonably conservative.


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

[Ian G]

On 12/06/11 10:55 PM, Nicholas Bohm wrote:


Ah well. I joined bitcoin quite early, seeing it as like donating spare
cycles to an interesting experiment.


I do agree whole heartedly that this is a great fun experiment, and 
worthy of attention.  It has pushed the boundaries of what we've known 
and is possible.  Its solution is indeed elegant.



I ended up with quite a substantial
balance, at no cost that I can identify.



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.



Hmmm!  So the innovators invested rather little, and came out with a 
lot.  Always attractive :)  And from PLC, we can agree that the 
innovators may deserve some compensation for the risk of a dodgy product.


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...



I quite see the force of the critical comments made here; but they
remind me of a (probably apocryphal) remark attributed to the late
Garret Fitzgerald when Prime Minister of Ireland. After a new scheme had
been outlined to his cabinet, and greeted with enthusiasm by several
ministers, he remarked, "Well, it's all very well in practice; but will
it work in theory?"


Sounds like a very perceptive man, I wonder what he would have thought 
of Ireland today?


In every bubble, there are those that see it is working in practice, and 
are benefitting from it.  (E.g., the banks really loved subprime I 
mean, they *really truly loved subprime* !!!)


Then there are those who are to come, later, and lose.  Finally, there 
are those who have to clean up.


When Fitgerald asks whether the theory is against the new innovation, I 
suspect he's asking whether the supporters/beneficiaries are expecting 
him to be in the last group, the clean up crew [1] ?


In this context, the practice tells us what is happening now.  $10 and 
rising!  Yoo hoo!


The theory will tell us what is likely to happen in the future.



iang



[] Keynes replies from his grave, "in the long run, we're all dead."
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Re: [cryptography] Digital cash in the news...

[Nicholas Bohm]

  
  
On 12/06/2011 13:23, Ian G wrote:
On
  12/06/11 4:21 PM, Peter Gutmann wrote:
  
  Am I the only one who thinks it's not
coincidence that the (supposed) major

use of bitcoin is by people buying hallucinogenic substances?

  
  
  
  The best way to think of this is from the marketing concepts of
  "product diffusion" or "product life cycle".
  
  
  http://www.quickmba.com/marketing/product/diffusion/
  
  
  The challenge for the new product is to migrate from left to
  center to right of that graph in above link.  In doing so, the
  newer groups come to dominate the earlier groups, and the earlier
  groups typically fall away.
  
  
  Recall the video story?  The innovators got in very early, and
  bought Betamax because it was better quality.  But they got stuck
  when the market was captured by the VHS system.  So lesson #1 is
  that early groups are risking punishment.  Same story for DVD.
  
  
  Also, the backroom story for video was that the porn films, the
  big market that lifted the revenues of the distribution chains,
  and made it worthwhile.  These products/people/chains kept the
  industry alive while it built up steam for the mainstream.  Lesson
  #2 -- you need these strange uncomfortable groups to get to where
  you want to get.
  
  
  Later on, as more mainstream comes into play, these strange
  uncomfortable groups can be eased out.  Or they go somewhere else,
  or we change our minds about them.  We also write them out of
  history...
  
  
  So, as far as recreational pharma product is concerned, this is
  typical of these things (if that is what it is).  E.g., SSL
  certificates early revenue was also porn, Paypal had some dodgy
  customers, and for e-gold, it was ponzis / games that pushed the
  business into the black.
  
  
  The challenge is what to do next, how to grow up.  This is going
  to be practically impossible for BitCoin because it has no guiding
  hand like e.g., Paypal had.  It's only got the invisible hand,
  which suits the innovators fine ... but it also means it hasn't
  got much of a chance of going mainstream.
  


Ah well.  I joined bitcoin quite early, seeing it as like donating
spare cycles to an interesting experiment.  I ended up with quite a
substantial balance, at no cost that I can identify.

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 quite see the force of the critical comments made here; but they
remind me of a (probably apocryphal) remark attributed to the late
Garret Fitzgerald when Prime Minister of Ireland.  After a new
scheme had been outlined to his cabinet, and greeted with enthusiasm
by several ministers, he remarked, "Well, it's all very well in
practice; but will it work in theory?"

Nicholas Bohm
-- 

  Contact
  and PGP key here

  

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

[Ian G]

On 12/06/11 4:21 PM, Peter Gutmann wrote:

Am I the only one who thinks it's not coincidence that the (supposed) major
use of bitcoin is by people buying hallucinogenic substances?



The best way to think of this is from the marketing concepts of "product 
diffusion" or "product life cycle".


http://www.quickmba.com/marketing/product/diffusion/

The challenge for the new product is to migrate from left to center to 
right of that graph in above link.  In doing so, the newer groups come 
to dominate the earlier groups, and the earlier groups typically fall away.


Recall the video story?  The innovators got in very early, and bought 
Betamax because it was better quality.  But they got stuck when the 
market was captured by the VHS system.  So lesson #1 is that early 
groups are risking punishment.  Same story for DVD.


Also, the backroom story for video was that the porn films, the big 
market that lifted the revenues of the distribution chains, and made it 
worthwhile.  These products/people/chains kept the industry alive while 
it built up steam for the mainstream.  Lesson #2 -- you need these 
strange uncomfortable groups to get to where you want to get.


Later on, as more mainstream comes into play, these strange 
uncomfortable groups can be eased out.  Or they go somewhere else, or we 
change our minds about them.  We also write them out of history...


So, as far as recreational pharma product is concerned, this is typical 
of these things (if that is what it is).  E.g., SSL certificates early 
revenue was also porn, Paypal had some dodgy customers, and for e-gold, 
it was ponzis / games that pushed the business into the black.


The challenge is what to do next, how to grow up.  This is going to be 
practically impossible for BitCoin because it has no guiding hand like 
e.g., Paypal had.  It's only got the invisible hand, which suits the 
innovators fine ... but it also means it hasn't got much of a chance of 
going mainstream.




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

[Peter Gutmann]

"James A. Donald"  writes:

>There is a small but not totally insignificant chance that after fiat monies
>collapse, the world will go bitcoin standard.  

ITYM:

There is a small but insignificant chance that fiat monies will collapse.
There is a small but insignificant chance that if this happens, the world will
  go to the bitcoin standard.
Since the Vogon Construction Fleet will have been and gone by this time, this
  will be a mostly academic issue.

Am I the only one who thinks it's not coincidence that the (supposed) major
use of bitcoin is by people buying hallucinogenic substances?

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

[Ian G]

On 12/06/11 8:29 AM, Jeffrey Walton wrote:

On Sat, Jun 11, 2011 at 4:13 PM, John Levine  wrote:

Unlike fiat currencies, algorithms assert limit of total volume.
And the mint and transaction infrastructure is decentral, so there's
no single point of control. These both are very useful properties.


Useful for something, but not useful for money.  I can't help but note
that the level of economic knowledge in the digital cash community is
pitifully low, and much of what people think they know is absurd.

OK, I bite - who has the knowledge? Is it the expert folks who have
the US 14 trillion or so in debt? Or is it embodied in experts in
other countries, such as Greece?



Unfortunately, those in central banks and other similar places have 
largely forgotton a lot of the processes of new issuance.  Also, they 
are really only familiar with their own type of issuance (e.g., worried 
about inflation).  They don't need more knowledge because it is no 
advantage to them to promote free market issuance.


Issuance is somewhat a lost art.  Before 1900 or so we knew a lot more 
because free banking was prevalent.  The 20th century can be described 
as the century of the central bank, which unfortunately split the 
issuance of monies into various components, so the knowledge stagnated 
and dispersed.  What then became important to central banks as 
custodians of the already issued national unit was monetary economics, 
which isn't the same thing as issuance.


Some of that knowledge has been re-learnt in the financial cryptography 
tradition.  You can see some of the lessons in e.g., the history of 
Paypal, e-gold, webmoney, goldmoney etc.  Other parts of that knowledge 
are vested in IPOs and the bond markets.  Yet other parts are found in 
contract law, accounting, and governance.  Another important part would 
be applications, which could be seen as a cross between software 
architecture and startup venture innovation.


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.


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

[Nico Williams]

On Sat, Jun 11, 2011 at 3:13 PM, John Levine  wrote:
> (Anyone who thinks that a gold standard is better than what we have
> now, or that the supply of gold is fixed in any but a purely
> hypothetical sense, is either ignorant of economic history or shilling
> for gold speculators.)

+1.  A fiat currency with no capital controls and reasonably free
trade is probably the best currency system yet.  Details do matter
though.  It helps when the issuer doesn't inflate, for example.
Still, the U.S. dollar has been that sort of currency since the 70s,
and it's worked out rather well.  (Which isn't to say it will
continue, but if it doesn't, it won't be due to any flaws in this
currency system.)

> ObCrypto: it would be interesting to figure out how to create a
> digital currency that has the characteristics of real money.  One
> possibility is to set up a sufficiently credible central bank that can
> manage the supply, but I doubt that would work unless that central
> bank was a national central bank, which would make the digital money
> fully convertible with real money.

A simple digital coin would be one with double spend detection, and
blind signatures for anonymity.  Double spend detection is a problem,
because it requires online infrastructure, which then becomes a
super-critical part of the economy, but I'm not sure how we can avoid
it.  The proof of computation idea is a total waste of precious energy
(check the news, energy shortages are likely to be a common problem in
Japan and Europe as a result of Fukushima, and probably elsewhere
too).

> Another interesting model is ETFs, exchange traded mutual funds.  They
> are tradable in arbitrarily small quantities, but only convertible to
> and from the underlying assets in large chunks by parties who have to
> register with the issuer.  The trades are close to anonymous, fully so
> if you use an offshore bank, the conversions are not.  The idea is
> that the conversions are done by arbitrageurs who track the prices of
> the asset and the ETF and buy or sell when they are sufficiently out
> of line.  This works pretty well, and other than in chaotic markets it
> is quite rare for the values to get more than a fraction of a percent
> apart.  The underlying asset can be anything with an easily
> determinable price such as a single currency or a basket of
> currencies.

Good point.  It's all in what's in that basket, and the rate of
transactions (i.e., whether people use this thing).

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

[Kevin W. Wall]

;-)

On Sat, Jun 11, 2011 at 6:29 PM, Jeffrey Walton  wrote:

> On Sat, Jun 11, 2011 at 4:13 PM, John Levine  wrote:
> >>Unlike fiat currencies, algorithms assert limit of total volume.
> >>And the mint and transaction infrastructure is decentral, so there's
> >>no single point of control. These both are very useful properties.
> >
> > Useful for something, but not useful for money.  I can't help but note
> > that the level of economic knowledge in the digital cash community is
> > pitifully low, and much of what people think they know is absurd.
> OK, I bite - who has the knowledge? Is it the expert folks who have
> the US 14 trillion or so in debt? Or is it embodied in experts in
> other countries, such as Greece?
>
> >
> > [SNIP]
> >
>
> Jeff
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Blog: http://off-the-wall-security.blogspot.com/
"The most likely way for the world to be destroyed, most experts agree,
is by accident. That's where we come in; we're computer professionals.
We *cause* accidents."-- Nathaniel Borenstein
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Re: [cryptography] Digital cash in the news...

[Jeffrey Walton]

On Sat, Jun 11, 2011 at 4:13 PM, John Levine  wrote:
>>Unlike fiat currencies, algorithms assert limit of total volume.
>>And the mint and transaction infrastructure is decentral, so there's
>>no single point of control. These both are very useful properties.
>
> Useful for something, but not useful for money.  I can't help but note
> that the level of economic knowledge in the digital cash community is
> pitifully low, and much of what people think they know is absurd.
OK, I bite - who has the knowledge? Is it the expert folks who have
the US 14 trillion or so in debt? Or is it embodied in experts in
other countries, such as Greece?

>
> [SNIP]
>

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

[John Levine]

>Unlike fiat currencies, algorithms assert limit of total volume.
>And the mint and transaction infrastructure is decentral, so there's
>no single point of control. These both are very useful properties.

Useful for something, but not useful for money.  I can't help but note
that the level of economic knowledge in the digital cash community is
pitifully low, and much of what people think they know is absurd.
(Anyone who thinks that a gold standard is better than what we have
now, or that the supply of gold is fixed in any but a purely
hypothetical sense, is either ignorant of economic history or shilling
for gold speculators.)

Anyone who's interested in this stuff should study the economic
history of the US, because we've tried everything, from gold to
bimetalism, to bimetalism plus private paper to bimetalism plus public
paper to a central bank with a formal gold standard, a central bank
with an implicit gold standard, and the current central bank with no
formal backing.  The greatest impetus for the creation of the Federal
Reserve in 1913 was that US business interests found themselves at a
disadvantage in international trade because, due to no central bank,
our currency was so flaky that nobody in other countries would write
contracts in it, demanding pounds or francs instead.

ObCrypto: it would be interesting to figure out how to create a
digital currency that has the characteristics of real money.  One
possibility is to set up a sufficiently credible central bank that can
manage the supply, but I doubt that would work unless that central
bank was a national central bank, which would make the digital money
fully convertible with real money.

Another interesting model is ETFs, exchange traded mutual funds.  They
are tradable in arbitrarily small quantities, but only convertible to
and from the underlying assets in large chunks by parties who have to
register with the issuer.  The trades are close to anonymous, fully so
if you use an offshore bank, the conversions are not.  The idea is
that the conversions are done by arbitrageurs who track the prices of
the asset and the ETF and buy or sell when they are sufficiently out
of line.  This works pretty well, and other than in chaotic markets it
is quite rare for the values to get more than a fraction of a percent
apart.  The underlying asset can be anything with an easily
determinable price such as a single currency or a basket of
currencies.

Regards,
John Levine, jo...@iecc.com, Primary Perpetrator of "The Internet for Dummies",
Please consider the environment before reading this e-mail. http://jl.ly

PS: If you think that the fixed supply of bitcoins is a good idea,
look at closed end mutual funds, which issue a fixed number of shares
that can never increase.  They are as much a payment system as
bitcoins are, since there are parties known as "stockbrokers" who
stand ready to convert them into a form usable for third party
payments at any time, at a price you won't know until you try it.
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Re: [cryptography] Digital cash in the news...

[Morlock Elloi]

BitCoin has only one problem: maintenance of the relationship between unit 
BitCoin value and the material world (energy, as in KWh) is 'soft', it requires 
some sort of a volatile communal effort, which sets it for failure (as a 
counter example, the amount of Au atoms on this planet is rather independent 
from any communal effort.)

The relationship between unit value and the material world needs to be fixed. 
It's just a matter of time.

Then we may name it ButtCoin.


> We expect money to be a store of value, among a few other
> things. BitCoin has nothing in it that speaks to that goal,
> that I can see [0].  This anti-property would however
> make it more ideal for a bubble [1].
> 
> Quite how to fix that and retain the decentralised control
> aspect, I'm unsure.  The essence of a contract is that
> someone delivers something to someone else;  without
> that first party (which speaks to centralisation at some
> level) it is hard.
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Re: [cryptography] Digital cash in the news...

[Steven Bellovin]

On Jun 10, 2011, at 10:16 55PM, John Levine wrote:

> In article <021ccba9-9203-4896-8412-481b94595...@cs.columbia.edu> you write:
>> http://gcn.com/articles/2011/06/09/bitcoins-digital-currency-silk-road-charles-schumer-joe-manchin.aspx?s=gcndaily_100611
> 
> I wouldn't call bitcoins digital cash.  They're more like digital
> tulip bulbs, or bearer shares of theglobe.com.
> 
> Whatever they are, it's a self limiting problem since the bubble will
> burst soon enough.
> 
My point in posting the item to this list was not to discuss whether or not
bitcoins are real digital cash, but to note that the technology has now
been publicly mentioned at the policy level.

But is it cash?  When my son was four years old, he asked me why a dollar
bill was worth a dollar.  He didn't like my answer, even though it was
absolutely correct: "because we all agree that it is".  If you can buy
things with it, it's money, unless it has some intrinsic utility of its own;
if it does have intrinsic value, it's a barter transaction.  Calling it
"digital tulip bulbs" is a way of saying that bitcoins are not a very
stable currency; with that I have no quarrel.  (Don't get me started
on the gold standard (I shouldn't even add this note).  But I do suggest
you read the (very brief) description in Steinberg's new biography "Bismarck:
A Life" of the economic woes the gold standard caused in late 19th century
Prussia and the other states of the Reich .)

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





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

[Ian G]

On 11/06/11 9:01 PM, Eugen Leitl wrote:

On Sat, Jun 11, 2011 at 03:58:07PM +1200, Peter Gutmann wrote:

"John Levine"  writes:


I wouldn't call bitcoins digital cash.  They're more like digital tulip bulbs,


Finally an analogy I can use to explain bitcoin to the masses (well, assuming
they know about the tulip mania).  I've been using Bartercard, which is a good
analogy but somewhat limited in international recognition.


Tulips were an investment bubble, not means of payment.


A requirement for a bubble would be a promise of ever-growing value, the 
rest is just the marketing.



People are so
quick to trust alternative local currencies and digital currencies
because the official currencies have issues with being gamed (e.g.
built-in inflation tax).


Yes, this is what I mean by the obsession against government monies, 
which makes people vulnerable to putting their value into alternate 
currencies.  Their desire to thumb their nose against the government 
outweights their desire to manage value wisely.  To the extent that 
people put their funtime income into this, it's the same as movies, 
gambling, porn.  Fine, but some people will inevitably invest their 
fortunes in it...


What is most extraordinary about the current thing -- and what tends to 
confirm "bubble" to me -- is that the same people who were desperate for 
the privacy promise of blinded bearer coins are projecting their old 
privacy beliefs on the nymous BitCoin:


http://www.pcworld.com/article/230084/us_senators_want_to_shut_down_bitcoins_the_currency_of_internet_drug_trade.html
http://www.reuters.com/article/2011/06/08/us-financial-bitcoins-idUSTRE7573T320110608


The biggest drive towards the use of Bitcoins on sites like Silk Road is 
that they supposedly cannot be traced [1]. However, a member of the 
Bitcoin core development team told Gawker that "...because all Bitcoin 
transactions are recorded in a public log, though the identities of all 
the parties are anonymous, law enforcement could use sophisticated 
network analysis techniques to parse the transaction flow and track down 
individual Bitcoin users."



Such a comparison was denied vociferously in bearer days.  Blinded 
transactions were the only way to do it, and the nymous architecture now 
seen in BitCoin was considered evil because the issuer could supposedly 
see "all".


Worse than a private nymous system, this one is public?!  What could be 
easier to datamine than a public database?  Give me a public database 
and a handful of subpoenas, and this thing goes down.




iang



[1] Note confused terms there.  BitCoin can be traced, but the holders 
aren't identified.  This is called "nymous" in the trade.  In contrast, 
bearer coins could not be traced, but typically the holders had 
identified accounts.  "Untraceable."  One system achieves privacy 
through a perpetual public key account mechanism, the other through an 
untraceable transfer between known persons.  You can take these axes and 
combine them to create 4 spaces if you desire...

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

[Ian G]

On 11/06/11 7:42 PM, Eugen Leitl wrote:

On Sat, Jun 11, 2011 at 02:16:55AM -, John Levine wrote:

In article<021ccba9-9203-4896-8412-481b94595...@cs.columbia.edu>  you write:

http://gcn.com/articles/2011/06/09/bitcoins-digital-currency-silk-road-charles-schumer-joe-manchin.aspx?s=gcndaily_100611


I wouldn't call bitcoins digital cash.  They're more like digital
tulip bulbs, or bearer shares of theglobe.com.

Whatever they are, it's a self limiting problem since the bubble will
burst soon enough.


Unlike fiat currencies, algorithms assert limit of total volume.
And the mint and transaction infrastructure is decentral, so there's
no single point of control. These both are very useful properties.


Cryptographically and computer-science-wise, very elegant.  But that 
doesn't mean they are useful properties to any particular application.


We expect money to be a store of value, among a few other things. 
BitCoin has nothing in it that speaks to that goal, that I can see [0]. 
 This anti-property would however make it more ideal for a bubble [1].


Quite how to fix that and retain the decentralised control aspect, I'm 
unsure.  The essence of a contract is that someone delivers something to 
someone else;  without that first party (which speaks to centralisation 
at some level) it is hard.


Can we have a community promise that maintains in a distributed 
contract?  And delivers a store of value?  I'm not sure.  It's certainly 
an interesting thought experiment, I think I can see how to make it 
work, but not in the current circumstance.



I don't expect Bitcoin to be it, but it is definitely a predecessor
to a number of such currencies which will become practical both
for machines and people.


That could be!  At an architectural level, I think that community is far 
too obsessed with the "big bad government" scenario when it comes to 
money issuance [2].  And looking for ways around this, when money is a 
far more complex subject than just one attacker.


In this sense, DigiCash and BitCoin are cypherpunk bubbles [3].  When we 
run out of geeks to be fascinated with the cryptographic elegance, the 
currency will collapse.




iang

[0] It may be that people see decentralisation, and the algorithmic 
control over volumes as being that store of value.  But this is to 
confuse the primary requirement (store of value) with the secondary 
governance techniques used by some issuers (i.e., governments) who have 
a particular flaw of inflation to deal with.  IOW, BitCoin's design 
might be more appropriate if it were run by a government, perversely.


[1] E.g., tulip bulbs were not a store of value (I don't think they 
could last over the season, they had to be grown that season) whereas it 
is extremely rare for housing "bubbles" to collapse more than half their 
peak.  And normally it's like 10-20% of their peak, which is not really 
a bubble, just a correction from a bit too much exhuberance.


[2] David Chaum made the same mistake when he replicated the 
hand-to-hand payments transaction in blinding digitial coins.  His 
obsession with preserving the privacy feature implemented in the h2h 
method led to a very elegant cryptographic breakthrough, but took him 
too far away from the meaning of money and the consumer's real needs in 
making trade & transactions.  A privacy thing that isn't used as money 
isn't much use.  For another small example, the geeks amongst us 
insisted on client programs to manage the money, but the world transacts 
these days on browser access (Which by the bye requires some form of 
client-server architecture).  Which can be seen with Paypal;  oldtimers 
will recall it was originally a client program on Palm Pilots doing 
hand-to-hand transfers.


[3] and, the various other ne'redowellers in there.
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Re: [cryptography] Digital cash in the news...

[Eugen Leitl]

On Sat, Jun 11, 2011 at 03:58:07PM +1200, Peter Gutmann wrote:
> "John Levine"  writes:
> 
> >I wouldn't call bitcoins digital cash.  They're more like digital tulip 
> >bulbs, 
> 
> Finally an analogy I can use to explain bitcoin to the masses (well, assuming 
> they know about the tulip mania).  I've been using Bartercard, which is a 
> good 
> analogy but somewhat limited in international recognition.

Tulips were an investment bubble, not means of payment. People are so
quick to trust alternative local currencies and digital currencies 
because the official currencies have issues with being gamed (e.g. 
built-in inflation tax).

For Bitcoin & Co to be usable e.g. in online transcations it doesn't
have to be tradeable with real currencies. The reason it's risen to
be, and so quickly, is merely due to a large demand. Now that people
know the demand is fillable, there will be alternatives, particularly,
if Bitcoin is attacked.
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Re: [cryptography] Digital cash in the news...

[Eugen Leitl]

On Sat, Jun 11, 2011 at 02:16:55AM -, John Levine wrote:
> In article <021ccba9-9203-4896-8412-481b94595...@cs.columbia.edu> you write:
> >http://gcn.com/articles/2011/06/09/bitcoins-digital-currency-silk-road-charles-schumer-joe-manchin.aspx?s=gcndaily_100611
> 
> I wouldn't call bitcoins digital cash.  They're more like digital
> tulip bulbs, or bearer shares of theglobe.com.
> 
> Whatever they are, it's a self limiting problem since the bubble will
> burst soon enough.

Unlike fiat currencies, algorithms assert limit of total volume.
And the mint and transaction infrastructure is decentral, so there's
no single point of control. These both are very useful properties.

I don't expect Bitcoin to be it, but it is definitely a predecessor
to a number of such currencies which will become practical both
for machines and people.
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Re: [cryptography] Digital cash in the news...

[James A. Donald]

On 2011-06-11 3:12 PM, James A. Donald wrote:

On 2011-06-11 1:58 PM, Peter Gutmann wrote:

I wouldn't call bitcoins digital cash. They're more like digital tulip
bulbs,


Misattribution, that was John Levine, not Peter Gutman.
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Re: [cryptography] Digital cash in the news...

[James A. Donald]

I wrote:

Therefore the market is valuing the chance that the world will go to a
bitcoin standard at


I meant to say:

Therefore the market is valuing the chance that the world will go to a 
bitcoin standard at two chances in a million, which sounds about right 
to me.

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

[James A. Donald]

On 2011-06-11 1:58 PM, Peter Gutmann wrote:

I wouldn't call bitcoins digital cash.  They're more like digital tulip bulbs,


Monetary value is always speculative.  It depends on the expectation 
that they will be used as money.


There is a small but not totally insignificant chance that after fiat 
monies collapse, the world will go bitcoin standard.  There is a large 
chance that the world will go gold standard.


There are about ten billion ounces of gold in the world, therefore 
fifteen trillion dollars worth of gold.  This value only makes sense if 
there is large chance that gold will be money.


There are about three hundred million dollars worth of bitcoins.

Therefore the market is valuing the chance that the world will go to a 
bitcoin standard at


The current value of gold looks about right to me.  So the current value 
of bitcoin is also about right - that all the gold in the world is worth 
about five hundred thousand times all the bitcoins in the world.


Which is probably a fairly conservative estimate for the prospects that 
the world will go bitcoin.


If the current price of gold makes sense, the current price of bitcoin 
makes sense.


I would recommend putting most of one's cashi in gold, and a tiny bit of 
one's cash in bitcoin.


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

[John Levine]

>Finally an analogy I can use to explain bitcoin to the masses (well, assuming 
>they know about the tulip mania).  I've been using Bartercard, which is a good 
>analogy but somewhat limited in international recognition.

Read the full rant: http://jl.ly/Money/bitcoin.html

R's,
John
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Re: [cryptography] Digital cash in the news...

[Peter Gutmann]

"John Levine"  writes:

>I wouldn't call bitcoins digital cash.  They're more like digital tulip bulbs, 

Finally an analogy I can use to explain bitcoin to the masses (well, assuming 
they know about the tulip mania).  I've been using Bartercard, which is a good 
analogy but somewhat limited in international recognition.

Peter.

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

[Peter Gutmann]

Steven Bellovin  writes:

>http://gcn.com/articles/2011/06/09/bitcoins-digital-currency-silk-road-charles-schumer-joe-manchin.aspx?s=gcndaily_100611

My response to this when it came up on the cpunx list:

Coming up next week, "The Bitcoin-based Child Porn Market".  And don't miss
our exciting future six-part series "The al-Qaeda/Bitcoin Connection".

  The sound of hoof beats 'cross the glade
  Good folk, lock up your son and daughter
  ...

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

[John Levine]

In article <021ccba9-9203-4896-8412-481b94595...@cs.columbia.edu> you write:
>http://gcn.com/articles/2011/06/09/bitcoins-digital-currency-silk-road-charles-schumer-joe-manchin.aspx?s=gcndaily_100611

I wouldn't call bitcoins digital cash.  They're more like digital
tulip bulbs, or bearer shares of theglobe.com.

Whatever they are, it's a self limiting problem since the bubble will
burst soon enough.

R's,
John
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