[LINK] BitCoin DDoS and/or Wallet-Hack

[Jim Birch]

On 19 April 2013 00:01, Karl Auer <kauer at biplane.com.au> wrote:

And what do people turn to, even today, in times of crisis or distrust?
> Gold.
>

The reason that (some) people turn to gold (at some times) is to do with
the fact that it's value is independent of any particular government.
Using the currency of a particular government is placing faith in that
government to (1) continue to exist, and (2) manage their currency in a
responsible way, that is, to protect the holders of the currency from high
levels of inflation.  A "banana republic" can print bills to pay for its
purchases but doing so reduces the value of currency held elsewhere.
Ideally the government should print money, but in line with the general
increase in real wealth in the currency's realm.  In fact, a little
inflation is good for the economy so the government should print a little
than this but not enough that people lose faith in the currency.  (An
inherent 1% inflation has been proposed for Bitcoin 2.0)  In addition,
economies are psychological and a good government can balance the natural
tendency to cycles of herd euphoria and gloom by tweaking the money supply
in various ways.

Successful currencies, notably the US dollar, are able to become default
second currencies in places where the local currency is poorly managed or
the state itself is unstable.  In this way, US dollars are an asset of
flight like gold.  (The US government effectively receives a massive
interest free loan from the rest of the world for providing this service.)

Gold itself has numerous problems.  Firstly, there are the problems with
liquidity, supply, and transporting lumps of metal around.  Secondly, its
price is quite unstable.  The amount of gold traded by speculators each
year varies but it remains many times the actual annual global production.
This means that the gold price is effectively determined by the psychology
of investors, who, as a group, have *inherently* unstable preferences.
Thirdly, and probably most importantly, abrogating control of the money
supply is going to produce amplified boom/bust cycles for the general
economy, not just instability in the currency itself.  Currency control is
only one way to manage the money supply but it is an important one.

Bitcoin solves the first of these problems quite well, perhaps too well as
transfers are probably too frictionless.  It is a dreadful failure in the
second area.  Since it has zero inherent value its value is solely in the
expectations, aka hallucinations, of traders and speculators.   Bitcoin
also fails in the third area: even if a government were to buy and sell
bitcoin to attempt to manage the money supply, its borderless nature would
make this ineffective (think Asian crisis).  Worse still, any particular
country's money supply would be be subject to random exogenous variations
driven by global events (think global eurozone.)

- Jim