How Currencies Work 101
Posted: Fri Jun 24, 2011 2:55 am
Full title should be "How Currencies Work 101: Why Bitcoin/Namecoin will ultimately fail as currencies" but thread titles can't be that long. ![Very Happy :D](./images/smilies/icon_e_biggrin.gif)
Bitcoin (and obviously by extension, Namecoin) was built around two ideas that were intended to make them "ideal" from the standpoint of ending manipulation by governments - a decentralized transaction database that cannot be manipulated by a central authority, and anonymous transactions for privacy.
We have a couple problems with these goals and the idea of using BTC/NMC as a currency:
1. A currency MUST have a central authority that manages its implementation through the creation and enforcement of sound fiscal and monetary policies, and a willingness to allow external market forces to interact with the value of the currency it manages in order to give it value to others outside its sphere of direct influence. In the absence of a central authority, a currency will automatically create or elect one.
2. A currency MUST have a means to trace fraudulent transactions to the people that committed the fraud. In the absence of any mechanism to do this, or in cases (like BTC/NMC) where transactions are anonymous by design, fraud will be rampant and uncontrollable without taking measures that will lead directly to the creation of some sort of system to vet transactions or the participants therein, which by definition removes transaction anonymity.
In the absence of one, Bitcoin created its own central authority based on the separate but interconnected actions of two groups - MtGox became the major exchange and DeepBit became the major mining pool. That's #1. The flurry of hackings and fraud that has attacked both BTC and NMC lately has drawn cries of a need to develop a "bank" of some sort, which would be #2.
Hundreds of years of currency development will not be denied: currencies work the way they do for a reason, and that reason is that they do not work any other way, no matter how fervently you might wish otherwise. No, saying "this will be different" won't help because it won't be different because it can't be different because "different" does not work. If you find yourself disagreeing with this, start researching the subject and become wiser.
The Bitcoin folks are finding this out. A cursory read of the Bitcoin forums shows this.
If Namecoin can form a unified central authority (and this appears to be happening, albeit slowly, right now) and develop a proper transaction recording system that can expose and ultimately detect/prevent fraud, Namecoin will survive Bitcoin's now-all-but-sure eventual collapse, and since Namecoin is tying a tangible value to the currency (.bit domains) it's already a leg up on the BTC.
History shows that the first new technology thing usually dies, but the second learns what #1 did wrong and thrives. Let's see if Namecoin can be what Bitcoin thus far can't, and thus secure its place in history...
![Very Happy :D](./images/smilies/icon_e_biggrin.gif)
Bitcoin (and obviously by extension, Namecoin) was built around two ideas that were intended to make them "ideal" from the standpoint of ending manipulation by governments - a decentralized transaction database that cannot be manipulated by a central authority, and anonymous transactions for privacy.
We have a couple problems with these goals and the idea of using BTC/NMC as a currency:
1. A currency MUST have a central authority that manages its implementation through the creation and enforcement of sound fiscal and monetary policies, and a willingness to allow external market forces to interact with the value of the currency it manages in order to give it value to others outside its sphere of direct influence. In the absence of a central authority, a currency will automatically create or elect one.
2. A currency MUST have a means to trace fraudulent transactions to the people that committed the fraud. In the absence of any mechanism to do this, or in cases (like BTC/NMC) where transactions are anonymous by design, fraud will be rampant and uncontrollable without taking measures that will lead directly to the creation of some sort of system to vet transactions or the participants therein, which by definition removes transaction anonymity.
In the absence of one, Bitcoin created its own central authority based on the separate but interconnected actions of two groups - MtGox became the major exchange and DeepBit became the major mining pool. That's #1. The flurry of hackings and fraud that has attacked both BTC and NMC lately has drawn cries of a need to develop a "bank" of some sort, which would be #2.
Hundreds of years of currency development will not be denied: currencies work the way they do for a reason, and that reason is that they do not work any other way, no matter how fervently you might wish otherwise. No, saying "this will be different" won't help because it won't be different because it can't be different because "different" does not work. If you find yourself disagreeing with this, start researching the subject and become wiser.
The Bitcoin folks are finding this out. A cursory read of the Bitcoin forums shows this.
If Namecoin can form a unified central authority (and this appears to be happening, albeit slowly, right now) and develop a proper transaction recording system that can expose and ultimately detect/prevent fraud, Namecoin will survive Bitcoin's now-all-but-sure eventual collapse, and since Namecoin is tying a tangible value to the currency (.bit domains) it's already a leg up on the BTC.
History shows that the first new technology thing usually dies, but the second learns what #1 did wrong and thrives. Let's see if Namecoin can be what Bitcoin thus far can't, and thus secure its place in history...