I'm really confused by the conversation about bitcoin.
What bitcoin is
Bitcoin basically serves the function of electronic cash. It has the benefits which physical cash has automatically but are hard to give to anything electronic: you don't have to prove your identity to spend it, you can just hand it over; it's anonymous[1]; it can't easily be counterfeited; and no central authority can arbitrarily decide to take it away from you.
It also has the drawbacks of physical cash: if you give it to someone, you can't get it back; and if it's stolen it's gone.
What bitcoin is not
What it is not is an electronic payment system, or a bank account. If you want to pay a credit card company 2% to assume liability in case you buy something and the seller reneges, major credit card companies only offer this service in major national currencies, not bitcoin or gold. If you want to put your money in a bank account and have the bank worry about security and/or invest the money on your behalf[2], you can only do that with national currencies, not bitcoin.
In fact, it's not cash, it's gold coins, cash with no government bank, backed by something that has little intrinsic value, but works because everyone sort of hopes it goes on working. Which sounds great until you realise that the government or central bank managing the money supply is actually really necessary for a healthy economy.
Up until recently governments hadn't got around to considering how banking regulations might apply. Now they have.
In other words, it works amazingly well as a first attempt at an electronic currency, but it's at the "stamping coins out of gold" stage, it has a while to go before it's as reliable as normal money for normal transactions (though it's moving very fast). And you can't easily run an economy on it.
Perception
To me, the conversation seems to have gone something like this:
Satoshi Nakamoto: Behold! An electronic currency.
Crypto geeks: Wow, we thought that was impossible. That's amazing. It will be useful for so many things.
Privacy geeks: Wow, maybe there is some solution to large multinationals having government-subpoenable records of every single transaction in our lives and which ones they might choose to consider "dangerous".
Newspaper opinion columns: HAHAHAHA! YOU SAID IT WAS AN ELECTRONIC PAYMENT SYSTEM AND IT ISN'T! YOU SO DUMB!
Internet libertarians: Wooo! It's like Cryptonomicon come to life. Removing the government from the currency will automatically make the economy better, because wishful thinking, despite most economists saying that's stupid.
Newspaper opinion columns: Also, do you think, maybe, appreciating in value 10000% might mean it's in a bubble? Hahahaha, geeks are so stupid.
Charlie Stross: NO! THE LIBERTARIANS TOUCHED IT! WE MUST IMMEDIATELY BURN IT TO THE GROUND AND SALT THE EARTH AND NEVER HAVE NICE THINGS EVER AGAIN! [3]
Stross is pretty knowledgeable about new technology. But I don't get, why are evaluating bitcoin based on whether it does what the newspaper opinion columnists and internet libertarians wanted?
Can we go back to talking about what the crypto geeks and privacy geeks wanted, because I thought that was kind of important!
Footnotes
[1] Details: there's a distributed public record of which public key bitcoins belong to. Theoretically, people don't know which person that public key belongs to, but if they study hard enough, they can figure it out based on who else it transfers money to. So if you do something the government doesn't like, you're not automatically safe. But if you want to accept bitcoins from someone, you don't need to know who they are.
[2] I wish those two things were more clearly delineated!
[3] Not exaggerating: http://www.antipope.org/charlie/blog-static/2013/12/why-i-want-bitcoin-to-die-in-a.html#comments
What bitcoin is
Bitcoin basically serves the function of electronic cash. It has the benefits which physical cash has automatically but are hard to give to anything electronic: you don't have to prove your identity to spend it, you can just hand it over; it's anonymous[1]; it can't easily be counterfeited; and no central authority can arbitrarily decide to take it away from you.
It also has the drawbacks of physical cash: if you give it to someone, you can't get it back; and if it's stolen it's gone.
What bitcoin is not
What it is not is an electronic payment system, or a bank account. If you want to pay a credit card company 2% to assume liability in case you buy something and the seller reneges, major credit card companies only offer this service in major national currencies, not bitcoin or gold. If you want to put your money in a bank account and have the bank worry about security and/or invest the money on your behalf[2], you can only do that with national currencies, not bitcoin.
In fact, it's not cash, it's gold coins, cash with no government bank, backed by something that has little intrinsic value, but works because everyone sort of hopes it goes on working. Which sounds great until you realise that the government or central bank managing the money supply is actually really necessary for a healthy economy.
Up until recently governments hadn't got around to considering how banking regulations might apply. Now they have.
In other words, it works amazingly well as a first attempt at an electronic currency, but it's at the "stamping coins out of gold" stage, it has a while to go before it's as reliable as normal money for normal transactions (though it's moving very fast). And you can't easily run an economy on it.
Perception
To me, the conversation seems to have gone something like this:
Satoshi Nakamoto: Behold! An electronic currency.
Crypto geeks: Wow, we thought that was impossible. That's amazing. It will be useful for so many things.
Privacy geeks: Wow, maybe there is some solution to large multinationals having government-subpoenable records of every single transaction in our lives and which ones they might choose to consider "dangerous".
Newspaper opinion columns: HAHAHAHA! YOU SAID IT WAS AN ELECTRONIC PAYMENT SYSTEM AND IT ISN'T! YOU SO DUMB!
Internet libertarians: Wooo! It's like Cryptonomicon come to life. Removing the government from the currency will automatically make the economy better, because wishful thinking, despite most economists saying that's stupid.
Newspaper opinion columns: Also, do you think, maybe, appreciating in value 10000% might mean it's in a bubble? Hahahaha, geeks are so stupid.
Charlie Stross: NO! THE LIBERTARIANS TOUCHED IT! WE MUST IMMEDIATELY BURN IT TO THE GROUND AND SALT THE EARTH AND NEVER HAVE NICE THINGS EVER AGAIN! [3]
Stross is pretty knowledgeable about new technology. But I don't get, why are evaluating bitcoin based on whether it does what the newspaper opinion columnists and internet libertarians wanted?
Can we go back to talking about what the crypto geeks and privacy geeks wanted, because I thought that was kind of important!
Footnotes
[1] Details: there's a distributed public record of which public key bitcoins belong to. Theoretically, people don't know which person that public key belongs to, but if they study hard enough, they can figure it out based on who else it transfers money to. So if you do something the government doesn't like, you're not automatically safe. But if you want to accept bitcoins from someone, you don't need to know who they are.
[2] I wish those two things were more clearly delineated!
[3] Not exaggerating: http://www.antipope.org/charlie/blog-static/2013/12/why-i-want-bitcoin-to-die-in-a.html#comments