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Move allows Nordic state to pump up taxes on the popular cryptocurrency (or cryptoinvestment?)

While its backers claim it’s the world's most popular "cryptocurrency", Norwegian officials say the "Bitcoin" is not currency at all.  While they acknowledge the popular form of digital payments has value, they disagree that it should be entitled to the protections that money has with regards to gains in value.
 
I. The Taxman Cometh
 
The procedure offers bitcoins some legal protections as a recognized "investment", but also opens them up to new taxes.  Germany, another European Union member state, adopted a similar stance earlier this year.  Canada has also practiced a similar policy, for some time now.
 
Norway's taxation director, Hans Christian Holte, is quoted by Bloomberg Technology as explaining:

Bitcoins don’t fall under the usual definition of money or currency.  We’ve done some assessments on what’s the right and sound way to handle this in the tax system.
Norway Hans Christian Holte
"The Tax Man": Norwegian tax director Hans Christian Holte [Image Source: SKL.no]

The bad news for those looking to cash out their Bitcoins in Norway is that the nation has a relatively high capital gains tax.  While investors in the U.S. often grumble about the ~19 percent they have to pay in taxes on investment profits, that's far more fortunate than the 28 percent levy that Norwegian investors incur (Source: Tax Foundation).  Germany is only slightly lower at 25 percent.
 
While they're no fans of extra taxes, some investors agree that the decision by the governments of Norway and Germany not to recognize Bitcoins as an international currency makes sense, to some extent.
 
II. Volatility Leads to Skepticism
 
Much of this skepticism has resulted due to the inflation in value of bitcoins.   Since a June 2011 low of $8 USD/bitcoin (during a bitcoin "Depression" of sorts), the value of Bitcoins has dramatically rebounded increasing in value 125-times to reach $1,000 USD/bitcoin on Nov. 27.  For the year bitcoins have been up as much as 7600 percent in value at their peak; prices have since rebounded, and currently coins are trading at around $860 USD/bitcoin, on the world's largest exchange, Mt. Gox.
 
Comments Sophocles Sophocleous, a director at Argos Capital Management in Cyprus, comments to Bloomberg Technology:

I don’t think you can even call something a currency if it can change in value by 20 percent to 30 percent a day.  At the end of the day, I think people want something backing a currency.

The comment overlooks somewhat that bitcoin's mathematics based programmatic backbone automatically increases the value by increasing the difficulty of the cryptographic hashes needed to "mine" a bitcoin, the method by which bitcoin's adopters seed the initial distribution of currency.

Bitcoins can be divided to tiny fractions, unlike the dollar, which has the smallest denomination of 1 penny ($0.01).  This softens the impact of rising mining costs, but as bitcoins have grown in demand, mining has failed to keep the currency trading at constant rates.

Again, that's more or less to be expected. As Bitcoin mining grows harder, and demand grows, the smaller fractions are essentially equivalent in value to what a larger fraction might have been a year ago.  This is obviously a highly volatile scenario, albeit predictably so.

Bitcoin miningBitcoin mining is inherently capped at 21 million BTC, regardless of software precision.
[Image Source: CoinDesk]

Barring some disaster (e.g. the U.S. leading a quest to shut down the bitcoin), a final pool of 20,999,999.9769 BTC will be reached, according to The Bitcoin Wiki, an authoritative resource on the cybercurrency.  Even if precision is increased, the formula guarantees that miners will never be able to generate more than 21 million Bitcoins, essentially the limit of the mathematical generation function.
 
It's possible the generating algorithms could be changed in future implementations, but that would require universal support and would fundamentally shift the economy.  Thus bitcoins are likely to remain locked at a maximum of 21 million, eventually halting the volatility based on mining and adoption.

Bitcoin transactions
Bitcoin skepticism is partially based on the currency's complexity. [Image Source: Josh Romero, et al.]

The currency does have some true volatility that extends beyond the underlying algorithms.  U.S. crackdowns on bitcoin traders operating as unlicensed exchanges has led to speculation that U.S. politicians may be considering an outright "ban" on bitcoins.  This has in turn made the price of bitcoin much more volatile on Mt. Gox -- the primary exchange where bitcoins are traded for U.S. currency -- than other exchanges, as noted by Coin Desk.

Bitcoin volatility
Some bitcoin volatility has been driven by regulatory fears. [Image Source: Coin Desk]

During Senate testimony, the price of bitcoins fluctuated wildly on a daily basis; this was part of how the $1,000 USD/bitcoin barrier was cracked so quickly.
 
III. Debate Over "Currency" Status Remains Ongoing
 
For some, like the Norwegian citizen Kristoffer Koch, who scored 5,000 in bitcoin for roughly $26.60 USD in 2009, and recently cashed out his holdings for NOK5M ($886,000 USD), the decision not to exempt bitcoin from capital gains taxes is a rough one. 
 
Mr. Koch already used his loot to buy a luxury condo in Toyen, Norway; now he could be on the hook for $248,800 USD in taxes.  As a computer science Ph.D., Mr. Koch probably can withstand that hit, but it will likely come as a bit of a shock.
 
On the flip side, the decision to make bitcoins an investment means that if you lose money on bitcoins you could write it off as capital losses, which could help to protect the cryptocurrency's backers.

Bitcoin smaller
Bitcoins being deemed an "investment" could offer some protections tax-wise.
[Image Source: Getty Images]

But beyond the questions of taxation and legal protections there's ongoing debate regarding the semantics of what exactly is "currency".

Some academics, think otherwise, while acknowledging that the currency is not as trusted as the physical currencies of industrialized nation.  Comments BI Norwegian Business School Department of Financial Economics Associate Professor Paul Ehling:

Currency is any agreed upon means of exchanges of goods and services, so you could have some small stones, as used in history, and if it’s accepted by a sufficiently large population, then that’s enough.  These days we do mean that a much larger group of people is willing to exchange goods or services for this currency.

If there’s a crisis or power outage, you need some bills in your wallet in case your credit card doesn’t work -- same goes with Bitcoins.  It’s sustainable if people use it more and more, and if they trust it. People start with buying small things, but if they start to make bigger and bigger transactions, it could begin to challenge other currencies. Right now, we’re not there.

In otherwords, you might not want to line your doomsday shelter with Bitcoins.  But for those comfortable with the uncertainties of bitcoins it's a fun, if risky ride.

Source: Bloomberg



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Semantics
By nafhan on 12/16/2013 1:35:58 PM , Rating: 2
Semantics is definitely an issue.
quote:
I don’t think you can even call something a currency if it can change in value by 20 percent to 30 percent a day.
This definitions is completely arbitrary.
quote:
At the end of the day, I think people want something backing a currency.
Also arbitrary, Yet, here we are with all major currencies backed by, essentially, nothing except the word of the issuing authorities.

What do we trust? Mathematics and cryptography or the good will of the Norwegian/US/etc. governments? Right now, I'd trust the governments, but I don't have any reason to believe that will always be the case.




RE: Semantics
By sorry dog on 12/16/2013 1:44:15 PM , Rating: 4
There has been more than one South American country that in the 80's and 90's that had inflation rates where a loaf of bread cost more at the end of day than the beginning. In the past in Brazil, most grocery stores would not put prices on the shelf since they changed to fast to keep up with it.

But as one might imagine, such things are not so good for economic prosperity.


RE: Semantics
By Solandri on 12/16/2013 2:22:19 PM , Rating: 4
quote:
quote:
I don’t think you can even call something a currency if it can change in value by 20 percent to 30 percent a day.
This definitions is completely arbitrary.

That definition is pretty much spot on. Currency is supposed to be a medium of exchange. An easier way to make a trade than you having to arrange a three-way meeting with the butcher and miller to trade a pig for a sack of wheat. You want your currency's value to be consistent, so you can sell the pig to the butcher for $10 first, then you take a few hours to walk to the miller, and spend the $10 to buy a sack of wheat.

You don't want the currency's value to swing wildly while you're walking from the butcher to the miller. Nor do you want it to appreciate or depreciate rapidly if you to put off the trip to the miller for a day or two. Those behaviors make a poor currency. If the value changes frequently, the grocery store has to constantly stamp new prices on all the items it sells. The extra labor of that re-pricing is a negative for anything you're trying to use as a currency.

quote:
quote:
At the end of the day, I think people want something backing a currency.

Also arbitrary, Yet, here we are with all major currencies backed by, essentially, nothing except the word of the issuing authorities.

All major currencies are backed by your faith in the people of the country making good on any debts the currency represents. This is not "nothing." If a country were to declare its existing currency is worthless and it will instead issue new currency, the financial backlash from existing debt-holders would drive the value of their new currency through the floor. That creates a huge incentive for countries to honor their obligation to back up their currency. Even when a country's government is overthrown by revolution, the old currency is usually honored by the new government to avoid this backlash.

There is no similar thing for bitcoins. Its value is entirely what people buying/trading it think it should be. That makes it a speculative investment, not a currency. You can try to use it as a currency, but due to the inconsistent value you're essentially bartering. There's nothing wrong with bartering, it's just usually done with things which have some practical value behind them (i.e. its value is people wanting to buy it to use it). You can barter in value-less things (baseball cards, Google stock) as long as people value those things. But it'd be foolish to try to use it as a currency because long-term there's nothing backing it up.


RE: Semantics
By futrtrubl on 12/16/2013 3:43:42 PM , Rating: 2
As I see it you have supplied an argument for why it might be a poor currency, not one for it being a non-currency.
Most (all?) current national currencies are backed by faith, as is the bitcoin and there have been national currencies that have rapidly swung in value before. Just look at the Zimbabwean dollar, which devalued 100 fold in less than a month, a far greater rate of change.


RE: Semantics
By Mint on 12/16/2013 11:45:48 PM , Rating: 2
If something that swings in value that drastically can be called a "poor" currency in your opinion, then you can consider a million things to be a currency. Oil futures, metals, corn futures, stocks, etc.

In essence, Solandri is pointing out this fact: No wages or goods are priced principally in Bitcoins. Until that changes (and I seriously doubt that it will), it will simply be a commodity, not a currency.


RE: Semantics
By stevend on 12/18/2013 4:00:09 AM , Rating: 2
Why do you people keep bringing up currencies of very poor and sometimes unstable African countries.

Is that really what you think bitcoins should be like?


RE: Semantics
By Fritzr on 12/18/2013 11:31:24 PM , Rating: 2
No ... they are simply pointing out that real world nation backed currencies act just like the things that Norway claims cannot be currency because of that behavior.

The Reichsmark, Zimbabwe dollar, Brazilian Real etc. have all undergone hyperinflation at some point.

A Subway sandwich costs about 5,000 Korean Won (US$5.00)
A maid in Manila can easily earn P5000 a month (US$125.00) Before Marcos withdrew Philippines from the treaty that set the peso-dollar exchange rate, the rate was 2P=$1 a few years ago the rate spiked at P55=$1 and today a weak dollar is at P43=$1 ... so is the Philippine peso not a currency? According to Norway it shouldn't be. It is after all subject to an unreasonable inflation rate.

The French Franc was "revalued" around 1960. People might say a book cost 500 francs quoting a price in old francs when the same book actually cost 5 new francs ($1 at the time)

Then there is the US dollar ... in 1973 a house cost $10k to $20k ... The US dollar is a very bad investment.

A currency is anything that is used to store the "value" in a barter trade between transactions ... nothing less & nothing more. It is just a tangible accounting token. Investments on the other hand are things purchased in hopes that their "value" measured in currency will inflate faster than the currency does. This includes currency trading where you are hoping the currency you "invest" in experiences a lower rate of inflation than the one you keep your accounts in.

Bitcoins only value is the amount of currency it can be traded for. It has no other value and it's only use is to transfer the value from a past barter trade to a future barter trade. This is the very definition of a currency.


RE: Semantics
By nafhan on 12/16/2013 3:44:23 PM , Rating: 1
quote:
Currency is supposed to be a medium of exchange.
Your story about the butcher and the wheat is kind of irrelevant in light of bitcoins actually being used as a method of exchange. Further, "hours to walk to the miller" is mostly irrelevant in the age of completely electronic exchanges. There might be a very small change in value over the 30 or 40 seconds it takes to buy and use the bitcoins, but nothing like 20 or 30 percent. You CAN speculate with bitcoins, but that doesn't preclude them being currency.
quote:
All major currencies are backed by your faith in the people of the country making good on any debts the currency represents. ... There is no similar thing for bitcoins.
That's the entire point of bitcoins and similar attempts at creating non-government backed currency. I could turn your argument around and say that putting US Dollars in savings is speculating on solvency of the US government. Either way it's faith, and I addressed that in the post you were replying to. My last sentence specifically said that I currently trust (most) national governments over any form of crypto-currency, right now.


RE: Semantics
By Solandri on 12/16/2013 6:45:09 PM , Rating: 2
quote:
Your story about the butcher and the wheat is kind of irrelevant in light of bitcoins actually being used as a method of exchange. Further, "hours to walk to the miller" is mostly irrelevant in the age of completely electronic exchanges.

*sigh*

The point of the "hours to walk to the miller" part of the story is to demonstrate that currency is not just a method of shifting barter transactions in space, they're also a method of shifting such transactions in time. If I have a freshly-killed pig which will begin to rot in a few hours, but the miller will not have the wheat milled until tomorrow, I do not have to write off the pig as a loss and butcher a new pig tomorrow to complete my transaction with the miller. I can sell the pig today, save the money until tomorrow, and use the money to pay the miller tomorrow.

But that only works if the money stays at roughly the same value over that time interval. With the magnitude of fluctuations in bitcoin value, someone giving you a 5 year loan of 100 bitcoins would likely have to charge you like 10,000% interest just to be safe. You'd have to pay him that exorbitant rate even if bitcoins only ended up appreciating 500% in the next 5 years. The volatility adds an enormous amount of risk.

This does not change with modern electronic transactions. Although the time for a single transaction may be faster, the time between transactions hasn't really changed since ancient times. People still eat three meals a day and sleep once every 24 hours, Winter still comes once a year, babies still take about 15 years to grow up into reasonably autonomous individuals. So the economic transactions based on all these periodic events remain spaced apart in time the same as they have always been.

quote:
That's the entire point of bitcoins and similar attempts at creating non-government backed currency.

No, that's the entire thing bitcoins are trying to avoid. The downside of a government backing your currency is that the government can manipulate it. The upside is that the country the government represents cannot shirk its responsibility to the debts the currency represents.

Bitcoins attempt to eliminate the downside of the government manipulating the currency. But in the process they also eliminate the upside of having some entity accountable for its value.


RE: Semantics
By nafhan on 12/16/2013 7:07:14 PM , Rating: 2
I'm not trying to say whether or not it's a good idea to keep bitcoins laying around unused for hours, days or months. I'm saying that they are in fact a currency, and I think all you've managed to do is list some of their downsides.

Based on the explanation you've given, any national currency experiencing inflation or deflation at some arbitrarily high rate would also not be considered a currency.


RE: Semantics
By Mint on 12/17/2013 12:07:21 AM , Rating: 2
No, it's not a currency. The purpose of a currency is to communicate a common sense of value through space and time, so that we can efficiently price goods, labor, contracts, etc.

When real currencies change in value relative to one another, within each country you still see relatively stable prices and wages. Imports/exports change, but beyond that currencies are serving the aforementioned purpose.

Bitcoins do none of that, because nothing is priced principally in Bitcoins. Until this changes, this will "currency" will be nothing but a scam in the making, with early hoarders waiting for the right time to dump them onto suckers.


RE: Semantics
By nafhan on 12/17/2013 10:22:18 AM , Rating: 2
So, if there is one thing with just a bitcoin price listed (e.g. "this costs 50 bitcoins and will always cost that much"), bitcoin would be a currency, but until that happens, it's not?

Again, that sounds arbitrary. Your definition is also way more specific than most of the general definitions I've seen, and honestly (again) sounds like a definition for a "good" or ideal currency rather than some minimum requirement.


RE: Semantics
By Mint on 12/17/2013 1:57:03 PM , Rating: 2
Then explain to my why your definition doesn't include commodities, stocks, or any liquid asset sold on an exchange from being a currency.

A line must be drawn somewhere in the vast gulf of price/wage variability between currencies and commodities. It doesn't matter where any reasonable person draws it or how arbitrarily chosen it is. Bitcoin will fall on the commodity side every time.


RE: Semantics
By nafhan on 12/17/2013 4:54:47 PM , Rating: 2
A lot of commodities can be currencies. Many metals for instance are currently both currencies and commodities.
quote:
Bitcoin will fall on the commodity side every time.
I haven't seen anything that leads me to believe this is universally true. That doesn't mean I'm planning to use it as a currency anytime soon, either.


RE: Semantics
By milktea on 12/17/2013 4:46:31 PM , Rating: 2
Don't get fool by the word bit'COIN'. Just because the inventor labels it with the word coin doesn't mean it is equivalent to currency.

Also, with centralized currency, the government controls the inflation rate. And if the government get out of line with the adjustment, people can always veto it.
But in the bitcoin case, do you trust the market to determine the inflation? And what could you do when you don't agree with the market decision?

Without a central agency to control our currency, bitcoin is left open to crooks/criminals. And these crooks could really screw up the market. You could argue that our government is a bigger crook. But I'd rather trust someone who's out in the open rather than hidden in the dark.


RE: Semantics
By nafhan on 12/17/2013 5:13:35 PM , Rating: 2
Your opinion that central governments should always be the reason for trust in a currency, works pretty well right now with Western governments. That doesn't make it proof that alternatives couldn't work or don't work.

There's plenty of legal and illegal manipulation of the currency/stock/commodity markets going on all the time. The fact that someone might be able to manipulate a market not backed by a central government is more a similarity than a peculiar negative aspect.

Anyway, this type of thing provides an alternative currency. I'm not saying that I believe it will supplant, say, the US dollar any time soon.


RE: Semantics
By milktea on 12/18/2013 12:04:58 PM , Rating: 2
Yes, but a lot of people don't understand the risk. Many think that bitcoin is equivalent to currency in the digital domain. And the market manipulators take advantage of that.


RE: Semantics
By milktea on 12/19/2013 1:04:32 AM , Rating: 2
By the way, you've ask for an example why Bitcoin isn't currency. But no one seem to have given you a good answer.
Well... I'll give you one obvious reason. It's known fact that Bitcoin has a finite amount of units. When you multiple it all out, the total possible atomic units is 2,099,999,997,690,000 (~ 2 quadrillion). Once the market is trading at this sub-fractional units, Bitcoin can no longer be divided. That's means you cannot obtain more Bitcoins to trade.
Unlike the good old centralized currency, it never runs out. The government can continue to issue more money when demand calls for it.
That is why Bitcoin is not equivalent to currency.

BTW, you might think 2 quadrillion is more than enough. But put that into computing perspective, 2 quadrillion bytes = 2000 terabytes. And a typical hard disk now is about 1TB, so if you add up 2000 hard disks, that would give you 2 quadrillion bytes. Now does 2000 hard disks seem like a lot to you? If you add up all the computers in a 5 mile radius, you'd easily have more than 2000 hard disks.


RE: Semantics
By nafhan on 12/19/2013 11:35:13 AM , Rating: 2
quote:
Unlike the good old centralized currency, it never runs out. The government can continue to issue more money when demand calls for it.
That's a specific shortcoming, one that it actually has in common with some coin based currency systems of the past. Not a reason why it's not a currency.


RE: Semantics
By milktea on 12/19/2013 1:59:54 PM , Rating: 2
So you're just questioning the definition of currency.
Which to me seems very broad. And with new kinds of medium of exchange appearing, the definition could misled many.

So rather than defining what 'is'. It's a lot simpler to categorize it, to associate it to another similar item, to avoid confusion. As such, I would put Bitcoin in the same category as Gold, which most people here seems to agree. Bitcoin doesn't belong to the same category as our fiat money. It's as simple as that.


RE: Semantics
By nafhan on 12/21/2013 9:58:12 PM , Rating: 2
quote:
Bitcoin doesn't belong to the same category as our fiat money.
I completely agree with that. At the same time, that's very different from saying Bitcoin is not a currency. It's not just me questioning the definition of currency, that was more or less the entire point of the original article (i.e. Norway saying bitcoins are not currency).


RE: Semantics
By Fritzr on 12/24/2013 7:41:25 AM , Rating: 2
When you have currencies that are valued specifically in the amount of copper, silver and gold each unit is worth, are you using commodities to make buy and sell payments or are you using a "currency" that also trades as a commodity giving you two different "price" points based on the exchange you are trading in? Currency exchanges after all are simply trading floors where currencies are traded as commodities.

Also a "currency" that is not legal tender is worthless unless you can find someone who is willing to trade "real" money for your "currency". Just try spending British Pounds in the US. You have to first find someone willing to buy your pounds with their dollars so you can use their dollars for transactions. In the US, British Pounds are not currency, they are a semi-liquid commodity and usually sell for far less than their currency exchange value.


RE: Semantics
By inperfectdarkness on 12/17/2013 3:26:33 AM , Rating: 2
So what happens when the crypto is cracked? Yes, it's a dubiously remote possibility...but thus far, history has yet to demonstrate one instance of an "unbreakable" code.


RE: Semantics
By milktea on 12/19/2013 12:45:19 AM , Rating: 2
According to FAQ, Bitcoin is vulnerable to quantum computing. And IBM already has some working prototype. I bet the Government also has a working prototype. So it's only a matter of 'short' time before Bitcoin algorithm is cracked.


speculative for sure
By headbox on 12/16/2013 1:24:28 PM , Rating: 2
I bought my first bitcoin just a few months ago for around $120. It jumped to over $1k, and is now back down to under $700. Imagine if the stock market did that. Clearly the "value" is driven by speculators, and not just as a currency exchange for goods and service. We are watching a bubble burst today. However, the items you buy for BTC are usually pegged to legal currency, meaning something will "cost" the same in relation to dollars regardless of the fluctuation in BTC price, as long as you are buying/selling often.




RE: speculative for sure
By JasonMick (blog) on 12/16/2013 2:59:43 PM , Rating: 3
quote:
It jumped to over $1k, and is now back down to under $700. Imagine if the stock market did that.
It does do that... all the time actually.

An example I personally got a tantalizing piece of was SIRI. I bought in to SIRI (Sirius XM) when it was at $0.05 USD -- just a small investment, a few thousand. At the time it was about to go bankrupt, but I had a good feeling that it might be rescued or taken over, so I dove in. Subsequently the company scored a white knight investor of sorts and avoided bankruptcy. Shares rebounded to $0.13 USD. I celebrated and sold.

Except had I held on, I could have sold for $4.00 earlier this year:
http://finance.yahoo.com/echarts?s=SIRI+Interactiv...

So that would be a 80-to-1 payout. In that light the 83-fold rise in Bitcoins (from $12 in in 2012) is impressive, but not unlike a risky stock play.

=================================================

I would stop there, but sadly by small SIRI fortune (~$10K) was subsequently invested in Cell Therapeutics, a company who was developing pixantrone -- a drug that treated non-Hodgkins lymphoma (NKL).

I'm not an MD, but I've taken graduate biochemistry/endicrinology/physiology courses, plus I know a fair bit about cancer first hand, being a leukemia survivor (8 years in remission, now!). I carefully scrutinized the results of the clinical trials, and it seemed that CTIC had a compelling drug that was relatively side-effect free, and fairly effective as far as cancer drugs go.

But as I would come to later realize FDA approval is a highly political and arbitrary game, that often is not based solely on a drug's merits. Anyhow, I bought during the buildup hype, held on hoping for approval and a big sale, and eventually ended up with shares worth a bout a third of what they had been. At that point I cut my losses, effectively back to where I started.

The irony? CTIC resubmitted their app and the stock is now back up to trading at $1.72 -- at least 3x what I paid for, and 10+x what I sold it for. ARGGHHHH!

=================================================

But yes, I suggest if you have a bit of cash you aren't afraid to lose, play a bit in day trading. It's interesting just how volatile many parts of the stock market are. It's like a slightly more educated version of blackjack at the casino -- you can win big, but you can also lose big.

Bitcoins behave like a stock (now), but the part of the criticism that's somewhat misleading is that mining is still ongoing and usage is growing; once mining stops, and usage reaches maximum levels, it will essentially only see small fluctuations, more like typical currencies (which due fluctuate) or blue chip stocks.

I understand the paranoia about bitcoins being a fad, but then again, the USD may be one grand fad ... if people lose faith in either, a lot of people will be left with losses. If you want to be on the paranoid side, invest in commodities with real, discrete value, e.g. diamonds and gold. ;)


RE: speculative for sure
By TSS on 12/16/2013 5:36:23 PM , Rating: 2
No the stock market doesn't. It cannot make a move of ~30% in a day since circuit breakers will trigger and trading will be halted long before that. And the only reason it does that at all is because of HFT machines; i doubt those have reached bitcoin (yet).

If bitcoin is like any stock market, it's like the one in 1929, without any and all protections added later because of the monumental crash. Not only that, but it'll have to deal with modern day financials (already companies are booting up bitcoin derivatives and bitcoin shorts - if you think it's volitile now guess again).

When mining stops, it'll just become more volitle not less. Right now if there's a selling panic, people can atleast look forward to regaining some of what is lost by mining more coins. Not in the future, where trading is all or nothing. Selling panics and buying hypes are more likely to happen, not less. As well as no significant amount having been added to the pool in recent weeks, while the price has gone all over the place, should show you that. Infact that's where i would claim bitcoin is like the stockmarket of the past 2-3 years, it moves on news and news alone rather then any sort of fundementals.

Also,
quote:
The comment overlooks somewhat that bitcoin's mathematics based programmatic backbone automatically increases the value by increasing the difficulty of the cryptographic hashes needed to "mine" a bitcoin, the method by which bitcoin's adopters seed the initial distribution of currency.


Wat?

I think you've got "value" and "effort" mixed up there. Bitcoin has no intrinsic value. It cannot be used for anything else but faith-based trading. The fact that it requires fossile fuels to create a digital number doesn't magically give that number value. If i refuse to write a number down until a lump of coal has been burned, then that number has no more or less value then a number i will write down without burning a lump of coal - in both cases you'll have a written number.

Burning coal because we cannot stop ourselves hitting that ctrl+p button, doesn't add value. It just makes us look even more stupid to our grandchildren.

There's nothing wrong with fiat currency. The problem lies in banks. Banks exist only to make more money and then we give them the ability to print money. Then we complain when they print trillions of it. There is something wrong with us.


RE: speculative for sure
By snyper256 on 12/16/2013 9:35:14 PM , Rating: 2
All this stuff won't stop Bitcoin adoption.


RE: speculative for sure
By JediJeb on 12/17/2013 1:35:17 PM , Rating: 2
quote:
Bitcoin has no intrinsic value. It cannot be used for anything else but faith-based trading.


What is the US Dollar based on?

Definitely not gold or silver as it once was.

If I own 1oz of gold and I decide I won't sell it for less than $10,000 does that make the gold worth more or the dollar worth less?

Any currency is worth only what someone will give you for it in goods or services, sitting in a bank it is really worth nothing but an arbitrary amount, a placeholder until it is used.

quote:
o the stock market doesn't. It cannot make a move of ~30% in a day since circuit breakers will trigger and trading will be halted long before that


Maybe the market as a whole, but individual stocks can. Just looking at the markets today Targacept , Inc. has dropped 31.45% so far today as I write this. Are Bitcoins better related to a whole market or a single stock?


RE: speculative for sure
By Mint on 12/17/2013 2:04:01 PM , Rating: 2
The US dollar is based on the Federal Reserve's promise to target inflation at ~2%. Inflation, in turn, is based on the cost of many different goods.

In other words, the US dollar is based on the ability of the US economy to produce or acquire common goods and services.

That's a hell of a lot more solid basis for currency than gold, silver, etc.


RE: speculative for sure
By sorry dog on 12/18/2013 12:24:25 PM , Rating: 2
quote:
The US dollar is based on the Federal Reserve's promise to target inflation at ~2%. Inflation, in turn, is based on the cost of many different goods.


Really?

Then how is that working out?

Oh wait...I almost forgot... the fed told me that just because groceries, health care, and education are rising closer to 10% that inflation is really 2% because the newest Ipad is both cheaper and faster than the original Ipad.


RE: speculative for sure
By JediJeb on 12/18/2013 1:38:25 PM , Rating: 2
quote:
The US dollar is based on the Federal Reserve's promise to target inflation at ~2%. Inflation, in turn, is based on the cost of many different goods.


That still means you are taking it on faith that the US government will do what it says it will do. Does that also mean that if natural inflation is not on target that the US government should step in and set prices for goods to control the value of the dollar?

quote:
That's a hell of a lot more solid basis for currency than gold, silver, etc.


That is assuming the person you wish to purchase from will take the dollar and not require payment in other means such as gold.


RE: speculative for sure
By ie5x on 12/17/2013 7:40:02 AM , Rating: 2
Kudos to you for beating that bully cancer!


Hhmmm...so that would make the dollar....
By sorry dog on 12/16/2013 1:35:06 PM , Rating: 2
quote:
I don’t think you can even call something a currency if it can change in value by 20 percent to 30 percent a day. At the end of the day, I think people want something backing a currency.


...something backing a currency... in the case of the U.S. dollar I guess that would be the word of the U.S. government?

Oh... I feel so much better now. I was afraid the paper money in my wallet my be considered an investment and not currency...




RE: Hhmmm...so that would make the dollar....
By Solandri on 12/16/2013 2:42:08 PM , Rating: 3
It's backed up by the productivity of the U.S. population. Productivity => taxes => government's word that they'll accept the paper currency in exchange for something of real value.

Contrast this with the days before government-issued currency. Some of the larger merchants guilds would issue their own currency (essentially paper bonds). It would work, up until the guild went broke or someone absconded with all the (real gold) funds. Because it was an ephemeral entity, there was no one you could easily track down or hold accountable for debts if you had a stack of their now-worthless bonds. That's not the case for a country - it can always be located and its reputation survives even change of governments.


By JediJeb on 12/17/2013 1:38:45 PM , Rating: 2
quote:
That's not the case for a country - it can always be located and its reputation survives even change of governments.


So if I had some Confederate money today I could spend it just like I could US Dollars?

I think it would be worthless since the Confederacy is now defunct, except for its collector value which can change at the whim of the collector.


By coburn_c on 12/16/2013 8:17:56 PM , Rating: 2
I've long said Bitcoin is not a currency. Currencies are backed by a treasury. Bitcoin is a commodity, like gold.


Computer science Phds
By 91TTZ on 12/16/2013 2:11:21 PM , Rating: 2
quote:
As a computer science Ph.D., Mr. Koch probably can withstand that hit


I think that $250k would be quite a burden to bear even for someone with a computer science Phd.




RE: Computer science Phds
By JasonMick (blog) on 12/16/2013 3:03:56 PM , Rating: 3
quote:
I think that $250k would be quite a burden to bear even for someone with a computer science Phd.
Sure, but it really depends.

I have a number of friends who are app developers, who aren't even any sort of business owner or manager, but are getting paid in the $100-150K USD range for their talents. Many of them have low living expenses (e.g. living in a crappy apartment, ~$600 a month type place) and are socking away ridiculous amounts of money (well, when they're not gambling it away).

But yea, based on others I know you certain MIGHT be right.

Still he could always sell his luxury condo, though. :P

At the end of the day, it sucks, but you've still made a small jackpot. I wouldn't thumb my nose at being left with "a mere" $500K anyday.


Capital Gains Rates
By Pallas Athene on 12/16/2013 1:24:53 PM , Rating: 2
I'm not sure where you're getting your information on Capital Gains rates. While you're correct that Norway is 28%, the average rate in the US is essentially the same at 27.9% (it varies by state, as the states also impose their own capital gains taxes).

http://taxfoundation.org/article/high-burden-state...

For those living in California, like me, the rate is a combined 33%. I would love to have the Norwegian or German capital gains rates.




RE: Capital Gains Rates
By sorry dog on 12/16/2013 1:37:02 PM , Rating: 2
The federal rate was in teens, but that rate had a sunset on it and the demos and O'bommer didn't really that low rate so much anyway...


Not A Currency
By bitmover461 on 12/17/2013 9:34:32 AM , Rating: 3
Bitcoins would be more accurately analogous to a bearer bond. Not a currency, but an instrument with value to the holder.




By flatrock on 12/17/2013 3:05:32 PM , Rating: 2
Since people do speculate on changes in the relative values of different currencies, it seems like saying Bitcoins are different than other currencies is a bit arbitrary.




By rountad on 12/17/2013 11:04:32 AM , Rating: 1
and a gangster collecting protection money?

Why do people think that making more money is a justification for paying more taxes?

And that spending should have no relation to justified mandates and Constitutionality, but happen according to whim, special interest, and without a budget?

Shouldn't taxes be as closely based on goods and services delivered as possible?




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