by Cyan

# -3

It's all right there in the title. Link. I believe the law under which the seizure occurred is Title 31.

## New to LessWrong?

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Yes, I too am very interested in Bitcoin, but why is this relevant to Less Wrong?

I don't think it is; you can't even frame it as 'the beginning of the end' because the market doesn't seem perturbed at all - the current MtGox rate is \$132!

However, this is a good excuse to post an interesting excerpt I found recently as any. On 11 January 2009, Hal Finney wrote:

As an amusing thought experiment, imagine that Bitcoin is successful and becomes the dominant payment system in use throughout the world. Then the total value of the currency should be equal to the total value of all the wealth in the world. Current estimates of total worldwide household wealth that I have found range from \$100 trillion to \$300 trillion. With 20 million coins, that gives each coin a value of about \$10 million. So the possibility of generating coins today with a few cents of compute time may be quite a good bet, with a payoff of something like 100 million to 1! Even if the odds of Bitcoin succeeding to this degree are slim, are they really 100 million to one against? Something to think about...

If Bitcoin goes to \$10m per coin, does that mean we get an anti-anti-Pascal's-mugging rhetorical weapon where we can say '100m to one payoffs do exist in the real world, look at Bitcoin!'?

Then the total value of the currency should be equal to the total value of all the wealth in the world.

I'm not sure where Hal got this idea. The total value of the currency should be equal to the total value of transactions in a year divided by the velocity of money (average number of times the currency changes hands in a year), not "the total value of all the wealth in the world". Here's a simple example. Suppose there are two people in the world, Alice who grows apples and Bob who grows oranges. In one year Alice spends all the Bitcoins in the world to buy oranges from Bob and then Bob spends all those Bitcoins to buy apples from Alice. The velocity of money would be 2 and the value of all the Bitcoins would be equal to half of the value of products exchanged.

Yes, if the price on other markets hasn't collapsed, then this isn't terrible news for bitcoin; if the price on MtGox doesn't deviate from other markets, then it isn't terrible news for MtGox. But you seem to imply that a high price on MtGox is a good sign for bitcoin and MtGox. This seems backwards to me: if MtGox were about to collapse, the natural response would be to turn account dollars into account bitcoins and thence real bitcoins, driving up the cost of bitcoins on that system. Or to put it another way, seizing dollars turns account dollars into fractionally backed paper, a third currency that people might not like.

MtGox sees flows in and out every day of a great deal of money through multiple payment systems and conduits; one faucet being turned off doesn't prevent every other flow from instantly and massively reacting to an existential threat to MtGox especially because so many of those users will be non-Americans who are not directly affected by American accounts being frozen; we did not see this massive reaction and panic. Hence the price is a perfectly reasonable indicator of overall confidence in Mtgox.

Then the total value of the currency should be equal to the total value of all the wealth in the world. Current estimates of total worldwide household wealth that I have found range from \$100 trillion to \$300 trillion. With 20 million coins, that gives each coin a value of about \$10 million.

Household wealth is mostly real estate deeds, stocks, bonds, bank accounts... There isn't much cash floating around. For instance, the U.S. Treasury estimates there is only about \$1.1 trillion of American currency in circulation (which may not account for destroyed bills, I'm not sure).

(which may not account for destroyed bills, I'm not sure).

The descriptions of M0 I see include holdings by the Federal Reserve of notes, and they seem to have a good handle on actively destroying degraded notes (http://www.federalreserve.gov/faqs/how-long-is-the-life-span-of-us-paper-money.htm), so I assume it does account for the destruction of old notes and printing of fresh notes to give a net M0. It wouldn't make much sense to count destruction but not creation, or creation but not destruction, or neither (since the first two guarantee an increasingly inaccurate M0 and the latter could cause accuracy issues if destruction were not pegged exactly to creation).

the current MtGox rate is \$132!

So the possibility of generating coins today with a few cents of compute time may be quite a good bet, with a payoff of something like 100 million to 1!

If the current price of a bitcoin is \$132, then obviously the cost of generating new coins is greater than or equal to \$132, is it not? Otherwise, no one would buy bitcoins, they would just mine them.

There are economies of scale involved. Cheaper hardware (like a gaming GPU) costs more electricity, but can be purchased off the shelf. Custom ASIC hardware is dramatically more energy-efficient, but you need a pretty significant investment to get started. When that economy of scale is maxxed out, there are further optimizations to be tackled like superconducting electronics, quantum computing, thinsat arrays, and so forth.

The same reason that all of these other discussion posts are relevant to Less Wrong. I'm not really sure what that reason is; I just happened to know that there is some interest in bitcoin, so I was linking it in case those interested had missed it.

On a more specific note, a complete government shutdown is one of the causal mechanisms proposed when hypothesizing the long-term worthlessness of cryptocurrencies. The link provides a jumping-off point for a Less Wrong assessment of the newly available empirical evidence about this hypothesis. (I expected those with more knowledge of and investment in bitcoin than me to begin this assessment spontaneously when made aware of this event.)

This result could be seen as making dollars less trustworthy, rather than bitcoins. After all, the account that was seized was dollars, and the violated regulations appear to only apply to dollars and other kinds of government money.