“A man walks into a bank….” (A Bitcoin parable)

A man walks to a bank with a $1 million check.

Bitcoin check cropped 2018_03_25_17_07_38

M: I’d like to cash this check, please!

T: Sir, this check does not seem to be drawn on an account at this bank. In, fact it does not seem to be drawn on any account at any bank

M: No, I made the check myself. But I assure you it is authentic. Check the signature on the check!

T: But is it is signed “Anonymous”.

M: Yes, and I will happy countersign the back as “Anonymous” as well so you can verify that the signatures are identical. Additionally I can assure you that this check is original and not a copy of one that I have already cashed. Feel free to ask around and you will find that I have never cashed a check that looks exactly like this one before.

T: I have no doubt that this is an original, but if there is no account to withdraw the funds from then where should I get the money to give you?

M: Have some faith! If you are willing to give me money for this check, then certainly you can convince someone else in-turn to give you even more money for it!

9 comments

  1. Olga Stachenkyo

    A fairly accurate description of the generic con pulled off by fiat issuers around the globe for the last 500 years. Thanks for that :).

  2. ahmed

    1) A dollar is an IOU from the government, a BitCoin is an IOU from no one.

    Commodities are also IOUs from no one, don’t tell me a painting has value because you can burn it for heat lol.

    2) No matter how many times the BitCoin is transferred, it is still a single-sided book entry without intrinsic value.

    Yes, but the amount of bitcoin minted per year is roughly set, with the reward for the lucky ones being updated every occasionally.

    Hate to use the gold example, but when gold is extracted from the ground it’s a single-sided book entry and you are hoping that the amount of these entries stays low for gold to hold its value. For diamonds, monopolies like de beers enforce artificial scarcity by holding diamonds. At least for btc, you know the quantity won’t double overnight unless there is a bug in the code or in case of attack on the network (which is scary by itself).

    3) There is nothing that compels those people to update their copy of the list when you request it, and they are even free to simply turn off their computers anytime they want to.

    If you are referring to miners here, it’s true there is a centralization problem with a few groups responsible for most of the mining power but movements toward things like PoS are aimed at solving this.

    4) The number that you use to be able to transfer your BitCoins (your private key) is a random number that effectively you make up. It is not interesting beyond the fact that you made it up and it is secret- it does not have any intrinsic value.

    Your private key doesn’t have value, neither do btc that you sent have value. The value is in a ledger.

    These days, bitcoin is not really seen as much of a currency anyways. As a currency, it is unusable. Transactions are slow and expensive. Bitcoin is seen as an asset, so really comparisons should be made to things like gold. Other blockchains are more suited to be currencies (fast, instant).

    I don’t necessarily have an issue with USD and IOUs, just showing the other side. I should disclose that I do hold bitcoin but am not as enthusiastic about it today as I was back when I got involved. I guess all of the opportunism and speculation in the crypto scene is sort of sickening.

    As an aside: I think blockchain programming might take off because of how easy it makes it for developers once you get into it. Majority of apps are simple enough to be a couple of hundred lines in contract code with just a thin web client on top, and ‘not-so-decentralized’ chains like those using delegated proof of stake models are fairly efficient. Who knows.

    • bigjosh2

      Commodities are also IOUs from no one, don’t tell me a painting has value because you can burn it for heat lol.

      I would not consider a painting a commodity. Commodities are physical raw materials that can be used to make higher value end products. I don’t see how they “are also an IOU from no one”. A commodity is a physical good that can be possessed and used to create other things. If I own a commodity, I can use it as I please without requiring credit worthiness from anyone – including the person who sold me the good.

      Hate to use the gold example, but when gold is extracted from the ground it’s a single-sided book entry

      Gold is not a single sided book entry. It is not a book entry at all. It is a physical good that can be owned and used. If I have bar of gold, its value to me is not dependent on anyone else’s credit worthiness. See above.

      Your private key doesn’t have value, neither do btc that you sent have value. The value is in a ledger.

      What value are you referring to? I have a pen and paper on my desk. I write “ledger” at the top. How much money will you offer me to write the line “Ahmed has 1 million” on my sheet of paper? Note that I will happily take a photo of my sheet of paper after I make the new entry and post that photo to igmur.com so the ledger will be public and everyone can see it. How is this different than bitcoin’s blockchain from a value point of view? Don’t get caught up in technical details about how the blockchain makes it so you can prove only certain people can make entries at certain times – these arguments are irrelevant. Both ledgers started with nothing of value (the genesis block and my blank piece of paper), both increase the number of units in the system by adding one sided new entries.

  3. rjfr

    I have read you comments and posts about bitcoin and I don’t really understand you position. It is not like a dollar, fully agree (which also was the whole point with bitcoin), and you cannot just use something like NitCoin on a deserted isle. Very well, I agree on both points. But there are some people that have the need for a money that a. has known unchangeable emission rate (ref Venezuela and many more throughout the history), b. is censorship resistant, and c. can be sent through a communications channel. Enthusiast added value to bitcoin because of these attributes, and now a lot of value has been added because of speculation. For myself, I think it is pretty cool that I can simply add an open source library to my project and be connected to a money transfer network without needing permission from anybody.

    • bigjosh2

      “the need for a money that…” (my emphasis added)

      If I write the sentence “This sentence is valuable, it belongs to the person’s who name is listed last on the same sheet of paper this sentence is written on, and only the person who currently owns this sentence can add a new name to the end of the sheet of paper” and then I write my name as the fist name on the sheet, have I created money? Would you give me your car in exchange for me writing your name next on the list?

      • rjfr

        No, you would have created money, and no, I would not exchange my car for my name to be put as owner on the valuable sentence owner list. Satoshi had also not created money when he mined the genesis block (with the “valuable” number 5 000 000 000), or even the first few thousands of blocks after that. When Hal Finney received the first transaction from Satoshi he got nothing in terms of value. So what is the missing piece of the puzzle?

        • bigjosh2

          So the bitcoin mined in the first few thousand blocks are not money, but any coin mined starting after some certain block is money? Which is the pivotal block when the change happened? Why?

          • rjfr

            Just to clarify: at the time he mined them and at the time the first transaction was sent it was not money because no one had traded them for any other currency (or gold or whatever). Hardly anyone knew about it. I simply think that it became money, or at least a valuable asset, once it got a price in the markets. People poured fiat into it and that was the change. So yes, only the human perception changed and nothing else, and more people heard about it. Of course the software itself has been updated but that’s just minor fixes.
            Here is a nice post on why bitcoin does not violate Mises’ regression theorem
            https://bitcointalk.org/index.php?topic=583.msg5984#msg5984

          • bigjosh2

            Paraphrased:”The value of money now is based on the value of money established previously when the money had actual intrinsic value, even though that value is no longer associated with the money. This happens because people get used to the money having value while it still does and therefore do not care (notice?) when that original source of value is gone.”

            For sake of argument, lets assume this is true (only for sake of argument because I whole heatedly do not believe it is!). In the case of bitcoin, what was the original underlying asset that gave the original bitcoin value that established the T-1 pattern on which its supposed current value is dependent on?

            (Oh, this logical stipulation hurts me even just to type it!)

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