DailyDirt: In Money We Trust

from the urls-we-dig-up dept

Tue, May 31st 2011 5:00pm — Michael Ho

Fiat money only has value because governments have established its value by decree. And the value of currencies can be reset -- such as Brazil's cruzeiro currency when it was replaced by the Unit of Real Value (URV). Here are just a few quick links on other somewhat "temporary" currencies.

Long ago, the island of Yap created huge, heavy, carved pieces of limestone as a form of currency. Since moving the stones is pretty difficult, these "coins" are transferred abstractly by just changing who owns the stone. [url]
Bitcoin is a digital currency based on a cryptographic scheme -- preventing fraudulent transactions and allowing for reliable transfers without central banking entities. Interestingly, Bitcoin (briefly) achieved parity with the US dollar earlier this year, but it hasn't sustained that value. [url]
The virtual economy of Second Life is based on another digital currency, the Linden dollar. However, the Linden dollar is governed by Terms of Service that explicitly state that the Linden is not real currency or any type of financial instrument. [url]
To discover more interesting stuff on economics, check out what's currently floating around the StumbleUpon universe. [url]

By the way, StumbleUpon can recommend some good Techdirt articles, too.

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

Filed Under: bitcoin, cruzeiro, money, second life, urv, yap
Companies: linden labs

16 Comments

If you liked this post, you may also be interested in...

Reader Comments

Subscribe: RSS

View by: Time | Thread

Jeff Woods (profile), 31 May 2011 @ 5:24pm

sustained BitCoin value
"Interestingly, Bitcoin (briefly) achieved parity with the US dollar earlier this year, but it hasn't sustained that value."

How do you figure that? It looks to me like BitCoin continues to climb in value relative to dollars in every market with non-trivial volume. See: http://www.bitcoincharts.com/
[ link to this | view in thread ]
NotMyRealName (profile), 31 May 2011 @ 8:07pm

Re: sustained BitCoin value
I still don't understand bitcoin. If I remember, it's not based on anything. there is no there, there. essentially a random distribution of "cash" to early adopters/people with sick video cards does not a currency make. how can a reliable currency be based on something both transient and near infinite like processor cycles?
[ link to this | view in thread ]
Jay (profile), 31 May 2011 @ 8:17pm

Re: Re: sustained BitCoin value
Does currency need to be backed by something to have value?
[ link to this | view in thread ]
Paul (profile), 31 May 2011 @ 8:23pm

Bit Coin's value
Bit coins are currently selling between 8 dollars to 9 dollars a bit coin on one of the bigger bit coin exchanges MtGox.com Here is the history: https://mtgox.com/trade/history

The main advantage to BitCoin is that virtual money can be exchanged without any central party controlling the exchange.

This is a truly disruptive approach to money, because there are mathematically a limited number of coins, their production is driven by solving math problems, and transactions are documented via public key / private key signatures.

I remain a bit fuzzy when it comes to how the transaction history on particular coins or parts of coins which are shared over a p2p network cannot be used to track transactions by individuals... But I don't understand everything about how these coins are managed.

It remains that bitcoins are an ingenious melding of the idea of making currency out of a scarce resource and the need to allow digital transactions.
[ link to this | view in thread ]
Lawrence D'Oliveiro, 31 May 2011 @ 9:26pm

Re: Bit Coin's value
Paul:

The main advantage to BitCoin is that virtual money can be exchanged without any central party controlling the exchange.

Can you say �money laundering�?
[ link to this | view in thread ]
Anonymous Coward, 31 May 2011 @ 9:43pm

Give me all your food. In exchange, you can have this big heavy rock.
[ link to this | view in thread ]
Anonymous Coward, 31 May 2011 @ 10:29pm

I remember that bit about the huge rock coins. One time, one of the coins was being carried somewhere in a boat, and the boat sank. Ownership of that particular coin was still worth something, even though the actual coin was at the bottom of the ocean.
[ link to this | view in thread ]
Getefix, 1 Jun 2011 @ 2:01am

Value
Nothing 'has' value. Value is solipsistic. To ascribe value to an object is to project ones own desire for satisfaction onto the physical world and make-believe it is a universal property -- neo-platonism once again rears its ugly head. The true 'value' in a transaction is the self-satisfaction felt by the parties upon conclusion. Facilitators of the transaction, such as dollars, dildos or dreams matter only in terms of how they affect said satisfaction.
[ link to this | view in thread ]
Frost, 1 Jun 2011 @ 2:04am

Now we just have to stop
Trusting in money, that is. It's a stupid and damaging concept for managing resources and we have to stop using it completely in favor of something much less manipulatable, such as a proper resource-based economy where values aren't warped by a money- and profit-based system but based on actual available resources here on planet Earth.
[ link to this | view in thread ]
NotMyRealName (profile), 1 Jun 2011 @ 3:34am

Re: Re: Re: sustained BitCoin value
I would say at least initially, it does. I think I've read that it boils down to trust... you the user trust that x(currency) is worth y(physical good). Without some form of initiator (read: buy-in, read: transfer of some physical good with near universally accepted value in exchange for currency) why should i trust that x(currency) is worth any more than an IOU from someone i don't know? Sure with all the encryption, etc. there is no chance its a counterfeit IOU, but how can I be expected to trust a currency that has no intrinsic "put-up or shut-up" value and instead relies -solely- on the principle of "its worth what people will trade or do for it"
[ link to this | view in thread ]
Nicedoggy, 1 Jun 2011 @ 4:32am

Re: Re: Re: Re: sustained BitCoin value
Well the same way you trust the other currencies including the dollar that are basically backed up just by faith.

Faith is everything, if people didn't believe in the currencies and stopped using them we wouldn't have economies, there is not enough gold in the world to back up all the wealth created in the last decades and that strategy can lead in some cases to extreme bad situations as can a runaway fiat currency, still between the two fiats are more flexible.

The one thing about wealth creation is that is not how much money is there but how much work is done, wealth is work done, not money, money is a placeholder for work the more money you have the more work you theoretically can do.

Of course it is more complex than that but in simple terms work is what matters and to keep people working we created money and from there it become about currencies that today are faith based so Bitcoin is good as any.

If people start using it and respect it, it will be a real currency. But no government want to loose control of their ability to print money, because it means they wouldn't be able to cheat their way out of all the mess they keep creating.
[ link to this | view in thread ]
cc (profile), 1 Jun 2011 @ 5:32am

Re: Re: Bit Coin's value
To be fair, it's basically money laundering without a central party controlling the exchange.
[ link to this | view in thread ]
chris (profile), 1 Jun 2011 @ 10:56am

Re: Re: Bit Coin's value
Can you say �money laundering�?

what do you think all currency exchanges are?
[ link to this | view in thread ]
Nicedoggy, 1 Jun 2011 @ 5:23pm

Re:
Or give me all your food and I will give you this pretty paper.

ps: Did people know that no country in the world print all the money that circulate on their economies?

I read somewhere that most countries only print less than half what the money circulating inside their economies at any given moment, it is much cheaper to just use accounts to hold the money and when more wealth is created by producing something(i.e. services, products, debt and so forth) it can easily expand to accommodate that new created wealth without having constraints like having to extract more gold to back up that wealth which created some big depressions in the last century.
[ link to this | view in thread ]
Paul (profile), 1 Jun 2011 @ 8:54pm

Re: Re: Bit Coin's value
What does Bitcoin allow? Well, lots of stuff. You cannot track transactions through third parties, so money can be sent to groups the government doesn't like. Sure, money can be laundered, or looking at it another way, it is itself pre-laundered. But really, you want to earn interest, so you want your money in an account to earn interest, so for large scale laundering, I don't think bitcoin does much.

But bitcoin allows unlimited transfers via email to anyone in the world. That makes Internet gambling easier, porn easier, funding wikileaks easier, funding terrorists easier.

Of course, it also makes buying and selling over craig's list easier, or with any other online merchant. Makes consulting easier. Basically, it cuts out Mastercard, Visa, American Express, Wells Fargo, Bank of America, Paypal, etc. out of the transaction costs.

On the balance, the advantages of bitcoin mostly favor reasonable and legal transactions, the every day kind of thing we used to do with cash anyway. Only now we can use cash on the Internet. You always could buy sex or drugs with cash, and you can buy sex and drugs maybe with bitcoins. Nothing morally changes just because you might be able to send money over the Internet.

All of this assumes that transactions cannot be tracked, which again, I don't understand.
[ link to this | view in thread ]
Paul (profile), 1 Jun 2011 @ 9:00pm

Re: Now we just have to stop
Funny you should say this. Only 21 million bitcoins are possible. The math to find bitcoins gets harder over time, so fewer and fewer will be "found".

So bitcoins are very much like virtual gold. There are only so many of them, and the P2P network tracks their existence and ownership.

No real resource on the earth is any different. We ascribe value to gold, there is only so much gold, and the more we use it for money, the more it is valued (independent of its actual pragmatic value). Here bitcoins are valued as people accept them and use them. They don't have pragmatic value (like gold), but this doesn't effect the lion share of the value of gold which does not derive from its pragmatic value.
[ link to this | view in thread ]