Do you use Bitcoin or Litecoin?

jamesd

What are the benefits of digital currencies?

Supporting the black economy, tax evasion and purchases of all forms of illegal goods.

What are the risks?

The same as the benefits but with the addition of failures of technology and incompetence without the well established banking systems and their protections like the FSCS.

Do you think the government should intervene to support their development? If so, what actions do you think it should take?

No

Should the government regulate them to protect users?

Yes, by adding purveyors, marketplaces and other middlemen to the usual terrorist, money laundering and boycotted countries and individuals blacklists so that it is harder for UK people to be affected by the issues.

Ryan_Futuristics

brendon wrote: »

There are more pounds spent on drugs and middle-eastern terrorism that there are Bitcoins.

Oh of course - BitCoin's whole market value is smaller than your average oligarch's daughter's trust fund

Completely disproportionate to the media coverage it gets

But ... it's also extremely difficult to get illicit funds from the UK over to places like Syria ... I don't think much of BitCoin's trade is really about ordering drinks in the odd trendy Brighton bar

brendon

Archi_Bald wrote: »

Or by those that vanish overnight.


http://www.independent.co.uk/news/business/news/investors-call-for-protection-after-second-bitcoin-collapse-9172076.html

That article is about a Bitcoin exchange. In theory, you could give money to PayPal and they could vanish overnight. However, Bitcoin is more like cash than a bank balance, in this respect. You don't have to trust anybody to store it for you. It is stored on a distributed network which authorises transactions by mining. The Bitcoin exchanges (MtGox) you reference have no role in mining the network or validating transactions. They are exchanges between USD, GBP and Bitcoin. When they collapsed, it didn't affect anybody else's Bitcoins.

captainhindsight_2

I use bit coins I think they are great instant form of payment. It is just like how I use any other currency, so I have money in my online account with natwestt and transfer it electronically. I have money in my Bitcoin wallet and transfer it electronically.

It is just there are no fees,and it's it is secure

If some one came to my business (a construction company) I would happily accept bitcoin payments.

Yes it fluctuates, so does any othe currency so don't see what the problem is. I feel my bitcoins are much safer than my pounds as they are secured by a network/community of thousands of users. The hash codes are so complex they are almost impossible to guess/steal. The only danger as I see it is loosing your login, as if you do your f***ed as there is no 'I have forgoton my password' option.

TheTracker

jamesd wrote: »

With bitcoin you have middlemen who take a cut from each transaction in fees and call themselves miners to make it appear that they are creating something rather than taxing your transactions.

The current fee for a transaction is about £0.03. You can volunteer that up to maybe £0.10 if you wish it to be processed faster. Compare that to any other transfer system.

jamesd wrote: »

With a Pound you have the taxable assets of the country supporting the promise to pay.

There is no promise to pay with Bitcoin because unlike the Pound the Bitcoin is an asset not a debt. The Pounds value comes from collateralised assets where as with Bitcoin it is commodity scarcity. Much like gold but without the mining production risks and storage fees.

jamesd wrote: »

The bitcoins paid to miners decrease the average value per bitcoin, a form of built in inflation just like any government printing more money.

No. Because Bitcoin is an asset not a debt everything is reversed and many commentators are initially spooked by deflation. Fears of a deflationary spiral are usually countered by the argument that as the deflation is known (as a result of the mathematically controlled slowdown in production) a spiral would be less likely to occur.

My comments above are paraphrased from various commonly held economic views on Bitcoin. Please do not lambast me if you disagree.

Personally I see the value of Bitcoin in rapid low fee exchange, particularly inter currency, and see a future where the volume of transaction is far higher than the material worth of the circulating coins as they'd only be held for fractions of a second. That won't happen unless volatility disappears and arbitrage is ameliorated. I realise most Bitcoin holders see its future as a store of value but I do not hold that view. For these reasons I do not intend to own any of the currency. And probably irrationally I'd like to see its value plummet to a pound to kill the speculators.

I liked the OP asking if anyone "used" Bitcoin as that is what I see the value of it lies in. Not if anyone "buys" or "invests" in it.

TheTracker

Archi_Bald wrote: »

Or by those that vanish overnight.


...news/business/news/investors-call-for-protection-after-second-bitcoin-collapse-9172076...

Most reporting on the risks around Bitcoin theft are naive. Typical thefts fall into three categories.

"Penny skimming". An exchange is hacked (or indeed designed to) extract tiny amounts from every transaction through malware on the exchange and send this to Bob. This was prevalent in early fiat banking schemes and will be ironed out through trust and exchange regulation. This appears to be what happened at mtgox for some time.

Central wallet theft. An exchange typically holds a cash wallet and Bitcoin wallet for a user. Both hold value depending on your direction of transaction. A hack on the exchange could divert the Bitcoin holdings or the cash holdings through purchase. This risk is actually lower than a bank model, with all else being equal. That is because best practice would be to use these wallets as temporary store during exchange only, and keep your value in a local wallet. At mtgox the biggest wallet theft was that which held the exchange owners profits.

Local wallet theft. You can store your value on your PC. This holds all sorts of risks including loss. Local virus/malware could divert the monies. But that's little different to the risks with online banking. You can remove this risk through only holding physical representations of your wallet, for instance on an A4 sheet in a safe deposit box.

Having said all that I do not hold any bitcoins. Though I am more likely to do so than trust a journalists view of anything to do with money.

Pincher

The quantity of Bitcoins currently available is pretty low.
If countries wanted to use it as a central bank reserve currency, each Bitcoin will have to be worth £millions.


The volatility makes it useless as a long term store of value, so no one would use it for savings on a retail level.


On the other hand, the absence of government monetary manipulation makes it a candidate for a world reference currency. Currently, they say sterling is up or down "against a basket of currencies", which acts as a composite index like the FTSE100.


The Forex market uses "cross rates", so you have USDJPY, GBPUSD, etc. If we can simplify the cross rates, so that you only have BITUSD, BITGBP, etc. it will have some useful benefits, including putting a lot of back office settlement staff out of work.


On the Forex, you have businesses that need to pay for oil in US$ from Saudi Arabia, iron ore from Australia in A$, as well the speculators who just trade to make a quick buck. In the BITUSD regime, you only buy and sell against Bitcoin. Counter intuitive or not, this massive number of transactions in and out of Bitcoin will actually make it NON-volatile.


Let us say you think Brazilian Real is going down, so you buy BITBRL in the morning, then sell in the afternoon, knowing the value Bitcoin will not vary much. In the current regime, you have to bet that the USD (or EUR, GBP, JPY etc.) is not going to do something funny and buy USDBRL, which complicates the bet.


If you want to exchange Korean Won for Swiss Francs, how on earth are you going to find a guy that WANTS your Korean Won? Trading through Bitcoin as an intermediate stage gives you far better flexibility.


For converting currencies, the less actively traded crossrates will have wider offer/bid spreads, but if the whole world is trading against Bitcoin, the spread should be at the smallest possible amount, for whatever currency.


The banks don't really like to move cash around, and you'll find that even though you may have a US$ account in Cyprus, the Bank of Cyprus actually has a pool account with say $100million in it with say, Bank of America. If you have a NatWest account in London, which holds its US$ with Bank of New York in its own pool account, asking for a SWIFT telegraphic transfer just moves the money from Bank of America to Bank of New York. In fact, there are all these other transfers back and forth, that the two banks could just say it's not worth the armoured truck going back and forth, we'll sort it out every three months.
The same sort of thing goes on with sterling, Yen, etc. They let you buy some US$ cash for going on holiday in Florida in London, but it's a hassle, for which they charge a fee.


Forex trades into and out of Bitcoin virtually eliminates the need for international settlements. In the case of the Korean to Swiss Franc trade, You pay the Korean Won into a pool account operated by the London based BitCoin exchange in Seoul. After you bought the Swiss Francs, the pool account in Switzerland operated by the exchange pays out to your Swiss bank account that you have set up. Obviously, the pool accounts can become low or high and some balancing transfers need to happen, but that's probably once a month, after millions of FREE local transfers. I'm sorry, the back office will be empty of settlement clerks.

Linton

Perhaps someone can explain to me how a bitcoin mortgage would work?

bowlhead99

Linton wrote: »

Perhaps someone can explain to me how a bitcoin mortgage would work?

What is there to explain? They give you enough bitcoins to buy a house. You owe them that amount of bitcoins plus interest.

At the moment bitcoins are too volatile for mainstream lenders to want to be owed that amount of bitcoins as it is too difficult to judge what they'll be worth when repaid, what your ongoing salary is likely to be in bitcoins to give you ability to repay, and what percentage of the house value the mortgage could end up being if they're hoping to get those bitcoins back...

Linton

bowlhead99 wrote: »

What is there to explain? They give you enough bitcoins to buy a house. You owe them that amount of bitcoins plus interest.

At the moment bitcoins are too volatile for mainstream lenders to want to be owed that amount of bitcoins as it is too difficult to judge what they'll be worth when repaid, what your ongoing salary is likely to be in bitcoins to give you ability to repay, and what percentage of the house value the mortgage could end up being if they're hoping to get those bitcoins back...

Where does the money come from?

- Do bitcoin owners need bank accounts? Or do we just have software running on one's own raw bitcoins? If not who provides mortgages?
- If they do, do the banks hold real bitcoins or virtual bitcoins - ie entries in a database? If the latter then this removes one of the main advantages claimed by bitcoin fans - the currency cant be "printed". Virtual bitcoins can be created out of thin air. Does fractional reserve banking work with real bitcoins? If not is there the liquidity to provide mass lending?