Edward Castronova, the leading economist of online gaming, writes that “Experience with game currencies makes me skeptical about Bitcoin“.
Game currencies are good currencies. What are the features of those currencies?
- You get money only by doing things that can be interpreted as “productive work.” No freebies or handouts, and nothing abstract. You don’t solve puzzles to get coin, you run FedEx quests.
- Mild inflation. As in the real world, mild inflation makes people happiest. Small enough to be unnoticeable in the short run, yet gives people a sense over time that their wealth and power is rising (even if it isn’t).
- It assumed that the currency will be hacked and exploited. A strong central authority is in place to seize illicit funds and roll back damage.
Bitcoins don’t have these features.
One thing, though: the last point is probably not consistent with strong anonymity. If you think that’s a valuable part of your coin model, you usually have to pay a price on the repudiation front.
Please don’t spread ignorance with more ignorance. Do your own research. Find out if this “leading economist of online gaming” knows anything about economics. The key difference between bitcoins and game coins is that game coins are printed out of no where. There was no “productive work.” on the part of the game designers to create the currency (not the game, the currency).
“mild inflation makes people happiest” – do your own research. Why did the Roman Empire collapse? What was the catalyst for the French Revolution? Why did Weimar Germany elect Hitler and engage the world in the second great war? What happened to Chile, Argentina, Peru, Angola, Yugoslavia, Belarus, Indonesia? What is wrong with Zimbabwe today? What is happening to Greece now? What will happen to the United States Dollar in the next ten years? Do you think hyperinflation, the result of inflation upon inflation based on more debt to pay off previous debt, do you think hyperinflation makes people happy? No, it finances wars and makes a few rich and many ignorantly blissful for a decade or three before the masses suffer.
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered.” –Thomas Jefferson
Guess what? The American people allowed the private banks to inflate the dollar and Americans are going to be homeless very very soon! In your heart you know it is true.
The Federal Reserve and the Central Banks are the puppet masters of games. Go on and take your education from a game expert. Or stand on your own two feet and read your history.
Now that is what I call trolling! oh my.
It’s so curious to me that discourse.net chooses to cite what I would consider one of the worst articles about bitcoin I have ever read. I’m not even saying it’s bad because it tries to paint bitcoin poorly, but that it is just so poorly researched, inaccurate and insubstantial. Just look at what commentators are saying in the original article to it to understand why I say this.
But to continue this theme of poorly researched opinion pieces, here is another awful article that discourse.net can also post:
http://smilingdavesblog.blogspot.com/2011/07/bitcoin-yet-again-in-simple-language.html
Again the commenters replies speak volumes more than the article itself.
Ed Castranova is a good economist. His work on Virtual Worlds proves that.
He has been very patient in the comments to his posts even though the trolls are out in force. And yes, the comments do speak volumes — mostly about the commentators.
Personally, I don’t see how a monetary system with a fixed number of coins in circulation — which is what Bitcoin will be some day — is useful as much more than a sideshow. Just for starters, the economy demands an increase in the money supply as it grows, just to prevent arbitrary deflation.
I also don’t see how Bitcoin’s prevention of a double-spend is secure against a botnet attack. Maybe someone could explain this please?
> [ Ed Castranova ] has been very patient in the
> comments to his posts even though the trolls
> are out in force.
Yes, I commend Ed. He seems to be learning something attentively, as well as retracting some of his misunderstandings.
> Just for starters, the economy demands an increase
> in the money supply as it grows, just to prevent
> arbitrary deflation.
When you say ‘the economy’, do you mean ‘any economy’, ‘global economy’, or ‘this particularly (virtual) economy’? Bitcoin does have monetary inflation (100% in the first year, 50% second, about 30% now, until 0%). However bitcoin is also experiencing price deflation due to a demand rate far greater than supply growth (or as some like to say, demand for fiat currency is shrinking).
Deflation is dangerous in a credit-backed system such as Japan, USA, and Europe. Because fiat money is only backed by loan debt, defaults and principal payments shrink the money supply creating monetary deflation and in most cases rapid price deflation. Massive loan defaults will set the banks in violation of their reserve requirements, perhaps bankruptcy. Thus banks will have a disincentive to lend money out at any interest rate (even 0% as in Japan). The economy halts. Monies not backed by debt, but by scarcity, do not suffer this disadvantage.
> I also don’t see how Bitcoin’s prevention of a
> double-spend is secure against a botnet attack.
What sort of attack do you mean? That a botnet will mine/validate an alternate block chain after validating previously spent coin — essentially spending bitcoins, waiting for 8 confirmations (1-2 hours), then accelerating the creation of a new longer block chain forked from before the double spend?
Yes. This *is* theoretically possible.
If an attacker were to spend a coin, then after it’s acceptance in the block chain use stolen 51+% computation power to produce the next two blocks before the ‘real’ chain produced one more (statistically this would require 75+%).
However, since no node will accept a respent coin until after about 10 blocks, the attacker would have to wait for the first spend be be confirmed (~2 hours) before launching the botnet attack which would require much more than the 51% computational power often posited. If I’m not mistaken, the attacker would require 1-(1/2)^10 of the global bitcoin network’s computational power (99.91%). Perhaps the attacker could keep a ‘loosing’ block for maybe eight blocks, and then accelerate the block production for the next four before the ‘real’ block validates two.
There are two reasons I don’t think this is a concern in the near future. First, the numerous ‘good guys’ command a computational performance that (I have heard) is greater than all of the earth’s top (10? 100?) supercomputers combined.
Second, it would likely be more profitable for a botnet controller to simply mine for legitimate coins. It would be a disgusting crime to steal computational power to generate 300 btc (~$4500) per hour, but could be sustained for a long time, rather than destroying confidence in the entire bitcoin economy.
If the attack was launched by an attacker not wishing to gain from bitcoin finances, but with the sole desire to destroy the bitcoin economy at any cost (say a large malicious bank or ten), then yes, I think they could succeed by harnessing the power of a botnot to destroy confidence in the block chain.
zef,
Thank you for linking to my blog. I’m sure many a reader, perhaps you yourself, can learn a bit from it.
The comments there indeed raise some points the bitcoin enthusiasts are confused about, and my replies should clarify for those who thirst for knowledge.