Cash pours into Aussie joke virtual currency

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Macro Morning

From the SMH today:

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Forget about bitcoin. The latest go-to cryptocurrency is called dogecoin, a digital denomination that began life less than two months ago as aΒ jokey tweetΒ made by 26-year-old Australian Jackson Palmer.

But his joke has now taken on a life of its own. The total value of the market for dogecoin (pronounced dough-je coin) has just topped $US60 million ($68 million) and it has spawned a community comprising thousands of buyers, sellers, merchants, beggars, speculators and “miners”, the people who mint the money.

This week, transactions worth a total of $US14 million were made, including one Chinese investor who bought $US5 million worth of the virtual currency. And on a daily basis dogecoin transactions are outstripping those in the more established bitcoin market, albeit for a smaller overall value.

While there are still question marks about the long-term viability and security of these alternative currencies, associate professor David Glance from the University of Western Australia’s Centre for Software Practice, for one, believes they have a big future – especially if they gain the backing of the official banking system.

With respect, this is an unwitting ponzi scheme.

David Llewellyn-Smith

Comments

  1. migtronixMEMBER

    Indeed!!! Thanks to central banks currencies are such a joke even a joke has more currency…

  2. The value of a currency is only what you can exchange it for in real terms.

    $10 buys me lunch. What do 10 dogecoins reliably trade for?

    Without a marketplace using the currency to actually facilitate real-world trade I can’t see how it can survive.

    • migtronixMEMBER

      Pffft just create an artificial marketplace by declaring “legal tender”, worked great for bank issued credit!

    • migtronixMEMBER

      @Johnson: Crazy right?: πŸ™‚

      Digging into that story, more than anything else, crystalized in my mind the notion that knowing the law and having conviction are the most powerful tools man can hold in modern society!
      I’ve found that ingenuity and a desire to be left alone are complementary traits to that pursuit.

      • Obviously a very intelligent and committed person. Pretty brave to do what he did as well (I especially liked the declaration of war lol).

        I’d actually love to be one of the tourists that go see the place πŸ™‚

    • migtronixMEMBER

      LOL Me too!

      And to think what drove him into it was wishing to get away from centrally planned dictatorship into a free market for his wheat…

      • dumb_non_economist

        mig, what’s he got away from? He pays his taxes and rates like anyone else and has to follow the law of the land like the rest of us!

      • @DNE He could, at the time, sell his wool unrestricted by WA legislation – that’s what he got away from…

  3. reusachtigeMEMBER

    lol… dodgy! All this must mean people are losing faith in government currencies. Hmmm, faith in a currency is all it has!

    • No… doggie

      I don’t think they are ponzi schemes

      More like the life cycle of Mus Musculus… exponential crash systems.

  4. I wonder if the Chinese investor remembered he’s done the deal after the hangover wore off! I recall 20 odd years ago when there was a lot of Indonesian cash floating about parts of NZ that real estate agents used to laugh and say ” He won’t even remember what he’s bought, tomorrow!” Nothing new in life, eh…..

  5. Each cypto currency might well have a mathematically provable limit to the number of units, but if there is a huge number, maybe an infinity, of cypto currencies, then there is an infinite supply of whatevers and so they’ll be worthless. Tulip bulbs, without the beautiful blooms.

    • Network effect negates that. Please look up market cap of bitcoins versus the others. Also, consider the size of the bitcoin network and the processing power behind that. Checkout http://www.bitcoinpulse.com for adoption rates. I suggest you take a second look before this ship sails.

      • Respectfully lloydie, that you have used the phrase “before this ship sails” strongly suggests what is the underlying reality of Bitcoin as a currency system design.

      • Ok. Let me share what I discovered. User base approx. 1 million. Growth rate in users at 20% per month. To reach 1% of population will take 1 to 2 years. Average education of users very much above average, male and higher than average incomes. Fixed supply of currency. Globally distributed peer to peer network with no central server.

      • “Fixed supply of currency.”

        #1 fundamental design flaw. One rendering Bitcoin — notwithstanding its many virtues — essentially a speculative endeavour (Ponzi).

      • But liquidity problem is resolved. Bet you can’t figure out how that was achieved in a fixed currency system. I guarantee; you will be impressed with the solution.

      • I was not aware that it was resolved. That is, not in any way that satisfies the fundamental problem of demand for Bitcoins being driven in large part by expectations of “capital” appreciation (in nominal, sovereign legal tender terms), those expectations being a function of a prevailing view that total supply is not just finite, but also, designed to slow down.

        If it has been solved in a way that negates that problem (ie, the perception of potential for speculative gains, in nominal sovereign currency terms), perhaps you can enlighten?

      • migtronixMEMBER

        @op8red: The santoshi! Early adopters of any successful technology will be gainers – that’s a constant. But the subdivision and its transactional accountability (can’t do usury!!!! All grams of gold are not the same…), with widespread acceptability, assure that one must span bitcoins not pretend paper bitcoins into the system to ever derive any function from holding them. Get it?

      • The demand for bitcoins does not affect the efficacy of bitcoin as a payments system in any way due to divisibility. You can transfer $1million via bitcoin whether one bitcoin is $1000 or $10 million.

        Due to fixed supply, people are expected to hoard bitcoins but as the value of bitcoin rises, the incentive to spend increases. Newly minted millionaires spend bitcoins which reduces the value bitcoins in fiat terms. Bitcoin “self corrects” in terms of valuation.

        Over the next few quarters, as the adoption rate increases, bitcoin is expected to be highly deflationary during this phase. Think of it as a window of opportunity until the adoption rate flat lines.

        After that bitcoin should be mildly deflationary but there will always be sufficient coins to be used due to divisibility. In my view, it is a myth that economic systems cannot grow under deflationary money, as the US grew under the gold standard during its formative years. Deflation is only anathema to debt based economic systems, IMHO.

        Imagine an economy where people spend based on needs and not because they are compelled to spend devaluing dollars. And they won’t be incentivised to obtain debt to fund speculative asset purchases.

      • I wish that the gentler of our species would also embrace bitcoin. Perhaps when LV starts accepting it. Nevertheless, bitcoin is currently the domain of computer specialists who appreciate what bitcoin is able to do from a technological, social, political and economic perspective. Don’t worry, I’m sure when more women get up to speed they will be managing the bitcoins that their partners have acquired, and will probably do a better job of it too.

  6. Hi All

    i’ve done a lot of research into Bitcoin of late, mostly coz there are so many in the precious metal community who have a certain affection for it (being outside of government control)

    Now up front, i don’t own BTC and might only ever buy 1 just for fun (no worse than a few bad nights at the casino if it goes to Zero)

    But, and this is important, the peer to peer payment technology and advancements that have been made are real.

    Note i’m not confusing this with it being ‘money’ itself over the long run (or that prices for it should rise, as money itself shouldn’t create value – over and bank interest)

    merely pointing out the technology and it deserves to be respected.

    • +1

      Bitcoin, the protocol, has solved the Byzantine generals’ problem. It enables the creation of decentralised exchanges through the Internet. This is the one of the most amazing inventions of our time. Please take the time to carefully consider this aspect of bitcoin.

      Secondly, bitcoin now has a very large network effect and is unlikely to be displaced by a rival digital currency.

  7. While a pure-crypto currency has plenty of appeal it is hard to see them doing much more than trail blazing for private currencies run by the huge current international payment networks.

    A more likely scenario is someone like PayPal or Mastercard setting up a private currency.

    What is stopping PayPal creating a PayPal Goldie currency actually backed by gold? (Each PayPal Goldie might consist of 1000 Gold Pennies)

    They could sell PayPal Goldies for the current price of 1 gram of gold (say $40) which means a Gold Penny would be about 4 cents.

    PayPal would need to buy a gram of gold for every PayPal Goldie sold and they would need to store it somewhere safe and guarantee never to sell, lease or otherwise issue any claim over the gold backing the PayPal Goldies.

    Users of PayPal Goldies would know there is always gold backing to their holdings but they would have the convenience of being able to use PayPal Goldies for any transactions using the PayPal system.

    Retailers would advertise their price in the local currency and also the PayPal Goldie Price.

    Then the debate would be whether we are actually experiencing inflation or deflation in prices. If history is any guide in most cases deflation in Goldies and inflation in the local fiat.

    Not hard to see many of the other payment processing companies doing exactly the same thing.

    At all times Paypal or any of the other payments processing companies issuing gold backed currencies must have 100% of the gold on hand and ready for immediate delivery.

    100% reserve banking.

    Governments can still use their own fiat currencies and can still demand people pay their taxes in fiat currency but people will be free to transact and store their wealth in non-fiat currencies.

    Banks can still do their money supply manipulations with fiat currency but they will banned from committing the ancient fraud of the goldsmiths who would issue more claims for gold than the gold actually held in their vaults.

    Let government have their fiat currencies but give people the choice to use a non-fiat currency when it suits them.

    None of this is intended as a criticism of BitCoin but it seems likely that its major achievement will be planting the seed for the introduction of private currencies supported by massive payments systems and backed by something a lot more solid than the whims of governments – binding contract law.

    A private company that guarantees it will maintain gold backing for its currency is more likely to keep its promise than a government and pollies believing themselves to be above the law.

    • migtronixMEMBER

      Nothing stops them (Visa/Amex/et al) nothing stops you going into competiton with them — effect, marginal rates of credit goes to what it should be – 0! – BTW Opion8red that’s how you get rid of usury, by competition not prohibition πŸ™‚

      • You will only ever get rid of usury through widespread dissemination of knowledge, specifically as to its fundamentally evil, unjust, and harmful nature. Descriptions that are historically well-evidenced.

        FWIW on competition vs prohibition, I have long said that the only way I can ever see the present paradigm being overthrown is via grassroots-driven alternatives arising that undermine the status quo.

        Alas, however, I fear that in the absence of right knowledge, that usury will simply continue to appear in the alternatives as well.

      • Just fwiw, anyone who advocates a currency system involving tokens (whether paper or digital) “backed” by gold, or any other commodity, is, with respect, ignorant and/or deluded, if they actually believe such a system would be good for all, and not (as now) fundamentally predisposed to rigging.

        Whoever controls, or, is able (by fair means or foul) to gain control of, any/all of the following, can (and will) manipulate a commodity-backed currency to their own advantage:

        1. Stock of reserves backing.
        2. Supply of reserves backing.
        3. Official reporting of the stock, and/or supply, of the reserves backing.

        So the idea that a “good” monetary system is a commodity-based one, is ignorant, and unwise, failing to comprehend the lessons of history and (arguably more importantly) human nature.

      • Unfortunately life is “fundamentally predisposed to rigging”.

        The price of freedom will continue to be eternal vigilence.

        But at least private currencies do not benefit from the veneer of credibility that comes with the authority of the state thumb print.

        Private companies will find that users will not accept their currencies without transparent mechanisms, including independent auditing, for verifying the claims they make for their currency and any backing for it. Note that having backing is not essential – trust that there will only ever be 1 Billion Pay Pal units may be enough.

        In any event with 100% reserve requirements and those currencies being used solely for the purposes of transactions and as a store of wealth they would be suitable for a prohibition on usury if that is your cup of tea.

        In the spirit of compromise I am more than happy to accept that if 100% reserve banking with usury doesn’t resolve the majority of the problems generated by the current banking system further measures including prohibitions on usury should be considered.

      • migtronixMEMBER

        @ phf007 as flawse might put it absoblooyloodly!!!

        The “authority” of the state via legal tender laws underwrote the blatantly greedy profiteering of usury leading institutions – and made slaves of us all.

      • You’re right on the money there pfh007, that is, viz. private currencies in particular. The appearance of private currencies in competition at least offers the chance of better/fairer systems developing. Though I maintain that without widespread knowledge of the hidden dynamics (eg, temptation to avarice) of usury, this is only a chance, and one laden with very high risk of the eventual return of monetary monopoly, thus, serfdom.

        Which is why migtronix too is absolutely spot on, when he calls for an end to legal tender laws. These serve no purpose, other than to force the general population to use the “sovereign” (ie usury-based) currency system for payment of taxes, and so essentially be slaves to usury.

        EDIT: You beat me to it @migtronix πŸ˜‰

    • Nothing stops PayPal or others but whatever protocol they use must be better for consumers than bitcoin, and that is difficult for me to imagine.

      • Agreed. If anyone is likely to develop something useful, the last company I’d expect is Paypal. I use them regularly for simplicity of playments, but using their website is a nightmare.

      • Several problems with bitcoin

        The increasing scarcity, easy access, and fools money causes exponential growth, this is what attracts “punters” with inadequate spare cash. Without, it would have no buyers.

        Fear and real risk of someone just taking your coins is what is causing the repeat exponential crashes.

        The “game over” problem that many people do not understand, is that, after a point “somewhere”, the scarcity of new coins will be so high it will create a condition where a coin loses all value.

        A real monetary system needs a heart beat (seasons can provide that, just like in “being there (1979)”, watched it last night lol, but seriously “crops/food production”). It also can not be truly global as most countries just can not function like that. Most countries just need funny money for tourists to use when they visit. The problem is the swap into assets with debt becomes too extreme when production is ignored or not cyclical.

        Usury was usually banned by religions and monarchies in the past to prolong stability. We are just seeing why. In the distant past most cultures used to lend money without asking for interest… i.e. like a share market with no loans.

      • Dear Blot. Bitcoin has already solved the problem of inadequate coins. If you don’t know how it did that, best do some research.

      • By using fractions of coins…. “To Infinity and beyond”

        It does not solve the problem I am explaining. They carry on about transaction fees will then add value to the coins. Nothing does, except desperation, luck and greed.

        I plan to divide 21 million imaginary oranges into a million pieces and say it is worth a million oranges. The people protest “no” and throw it all away or give it to someone else. Then convince them to treat the millionth of an orange as an orange again.

        At some point between now and 21 million the system will not just crash, it will fail so hard it will fail forever.

        The FAQ at bitcoin does not promise anything, that is the whole point. The driver of the system should be stability, but they even say it is not “but it might be with more people”.

        With more people you just have a bigger herd. Especially dangerous if you can not give them any guarantee at all and the system is exponential. BitCoin say themselves if they gave a guarantee it would be a Ponzi, lol. (although the definition of Ponzi involves fraud. which differs from BitCoins definition)

        I suppose you could say BitCoins definition of Ponzi is fraudulent. Therefore making it a Ponzi if they were raking a fee and/or selling coins to create a real money account…

      • Hi Blot, I see the issue you have is what is the “intrinsic value” of bitcoin. The answer is that bitcoin is the most amazing technological innovation we’ve seen since the Internet itself. Please look into why that is and you will understand why bitcoins are so valuable. Hint: bitcoin is far more useful than gold.

      • migtronixMEMBER

        @lloydie: in response to your comment to Blot I’d say yes in transactional value but as a store of value — gold doesn’t even oxidise!! It will weight the same in 2000 years if you put it at bottom of the sea or in a climate controlled locked box – BTC will cost you electricity at least πŸ™‚

      • So its intrinsic value is that it is amazing
        “causing great surprise or wonder; astonishing.”

        I am no fan of gold. However, gold comes out of a supernova, or from the collisions of stars, not even our star, it exists and can only be mined where liquid containing it has been compressed enough over and over again, no beating that. It is used in your solid state drive.

        Other things like diamonds are probably common in asteroids.

        It would be better if the world did fix up the gold system, but not for currency. For currency it is better if it is local, trade-able, traceable, taxable, environmentally friendly and based on a sane combination of things.

      • Sure gold is impressive. Nevertheless, it is less useful than bitcoins as a transfer of wealth. Bitcoin is a very important innovation in computer science that solves a forty year old computer problem. It is that aspect of bitcoin which gives bitcoin it’s value. In our technology driven world, bitcoin is highly valuable. You should find out why for yourself.

      • I could be wrong if the solution was not the application of fractional banking to bitcoins.

        However I suppose my point is using fractions is what makes paper gold dodgy, money dodgy and debt dodgy. Everything has that problem, and with bitcoins it would be just worse.

      • Hi Blot. Each bitcoin is an irreplaceable monetary unit. There is no fractional banking with bitcoins. It is divisible. However, bitcoins are valuable due to something else altogether that is related to the technological innovation it provides.

      • If governments did decide to implement something like it, then the distribution would need to be controlled and the tax.

        Even currently if you made money from bitcoins for example you have to pay tax on it which really puts the nail in the coffin. As in theory governments should be getting 30 or 40% of each profit in bitcoins. Any loses, however are eaten by the users.

      • migtronixMEMBER

        @Blot: its not the same problem at all, the “problem” is purely nomenclature — at the time it was decide that 1BTC would be 1×10^16 the lowest divisible unit that’s all.

        I posted the other day that the 1st ever BTC trade recored on MtGox was [email protected]/BTC 17/7/2010 — a total trade of US$1 for 20 coins. On the 31/11/2013 at a price of USD1309/BTC that trade was worth US$24,400. But you can see that the volume of bitcoins as a whole has gone down, but the value of bitcoins in the traded currency has remained largely constant. Get it? Its divisibility is its greatest functionality — the 0.1BTC I sent to lloydie earlier (which he sent back) was still worth AUD100!!

      • Well we would certainly see a migration of bitcoin start ups to Singapore and Hong Kong under a heavy tax scenario. However, tax is only paid if a net gain is made.

        Bitcoin already exists. No government has given permission for that to occur. Also no government has been able to successfully ban it. I suspect none will be able to. This is all related to the technological innovation that is bitcoin.

      • migtronixMEMBER

        To be precise the innovation that is bitcoin is the logical extension of the digital revolution to peer-to-peer transactional convenience and integrity. Use BTC/LTC/DTC(?) whatever as long as you see value and integrity in the transaction – if I offer you 0% interest on 20 bitcoins not only do I get the coins back fiat will have depreciated against it as much as its usury allows – then the Emperor is called out on his disrobe proclivities.

  8. Visa and Mastercard et al get their slice of the action without stumping up any collateral, why would they wish to change this cracking good scam?

    The ultimate in middle man usury, clean hands and full pockets.

    • You’re right. Bitcoin is forcing them to change. We don’t need a middle man with bitcoin. You can make 100% secure transactions over the Internet without any third parties. Consider the implications on all centralised exchanges. Auctions, stock exchanges, registries…

      • We don’t need a middle man with bitcoin. You can make 100% secure transactions over the Internet without any third parties.

        And zero protection from fraud.

      • Yes, zero protection from fraud also means zero fees. This enables micro payments of less than $1 dollar for articles, music, tips etc… Consider the impact this could have on publishing any kind of media.

        Wrt fraud, this problem is being fixed with hardware devices that will securely store bitcoins. It’s coming soon to a store near you.

      • migtronixMEMBER

        Fraud is joke! Look at the counterfeiting that passes for government issued paper these days! Give me escrow or give me debt!

      • Yes, zero protection from fraud also means zero fees. This enables micro payments of less than $1 dollar for articles, music, tips etc… Consider the impact this could have on publishing any kind of media.

        The problems with “publishing any kind of media” aren’t around avenues of payment, they’re around mainstream exposure.

        Wrt fraud, this problem is being fixed with hardware devices that will securely store bitcoins. It’s coming soon to a store near you.

        That doesn’t sound like anything to do with fraud to me.

        How’s it going to help when I pay someone and they send me faulty goods ? Or ask for a deposit and then don’t deliver anything at all ?

      • Yes. Please look into bittunes wrt media exposure. Check it out on youtube and why it will change the music industry.

        Fraud comes in many forms. Hardware protection offers private key protection. Wrt faulty goods etc, that is a an issue of merchant reputation. The same issue would occur with cash, for which we have consumer protection laws.

        The issue of non delivery is addressed via reputation trackers and escrow.

      • Wrt faulty goods etc, that is a an issue of merchant reputation. The same issue would occur with cash, for which we have consumer protection laws.

        People don’t buy stuff from online stores and eBay with cash. Bitcoin isn’t competing with cash, it’s competing with credit and debit cards.

        Consumer protection laws in Australia are useless if I purchase from someone not in Australia. A credit card issuer or Paypal, however, will reverse charges if I can demonstrate fraud has taken place.

        The issue of non delivery is addressed via reputation trackers and escrow.

        Escrow attracts fees, thus making it no different to, for example, a credit card (or escrow with existing transfer facilities).

        A “reputation tracker” – other than being easily gameable – offers zero protection, merely somewhat more confidence.

      • Of course what you say is true today but as we know the Internet today is very different than what it was even just five years ago. Sure, you won’t be able to buy stuff from eBay right now with bitcoins, however this does not alter the fact that bitcoin is a transaction technology that allows funds transfer without a third party. If you don’t like it and can’t find a use for such a technology within a narrow range of experience ie eBay, that does not mean the technology itself is pointless.

        Surely, you can think of other scenarios where transactions through an open network without third party intervention would be useful? Have you considered that eBay itself could be decentralised? Also, iTunes could be decentralised. Even Dropbox could be decentralised. The decentralisation of money is only the first step. Now, people in Argentina can transfer wealth out of the country with bitcoin. Compared to that, I’m hardly worried about some consumer living in a developed country not being able to reverse a transaction on eBay. That’s right I’m calling your issue a first world problem.

      • People who don’t see the potential of the technology only offer up problems. The people who understand what decentralisation means are already busily coding up the future, participating in bitcoin and supporting it.

        The protocol allows for secure transactions over an insecure network environment without third parties. This is a major milestone in network development that allows for all kinds of innovations in decentralisation to take place.

        You no longer require banks to intermediate on your behalf if you don’t want them involved. To say that you like third party intermediation is to miss the point. The point is this: you can choose when to and when not to use a third party. You now have choice, where before you didn’t.

  9. And why not buy dodgycoin? or ponzicoin? or FUcoin?

    Current fiat currency repression is unbearable. RAMS just squeezed another .1% off everyones monthly interest payments.

    They do it by stealth.

      • @DNE well there is that too πŸ˜‰ he he.

        But what lloydie is talking about is something more like when the internet first came around geeks like me would use 600 baud modems to telnet and ftp into BBs and whatever — then someone came up with HTTP – this led to all web technology including On Demand Streaming — THATS THE POWER OF THE NETWORK. The original web browser – mosaic – is long gone but the technology/network is everywhere.

      • “”well there is that too”

        And yet again, my suspicions confirmed πŸ˜‰

        BTW, I fully concur with both lloydie and yourself re the positive possibilities arising from the technology employed by BC.

        But as a currency, it’s a ponzi.

      • If one assumes the technology is here to stay then it is possible to make a calculated bet wrt the network effect, which is significant and unlikely to be overtaken. Assuming that bitcoin is somehow superseded, simply transfer bitcoin to the successor coin.

        I doubt bitcoin is a ponzi. However, for argument’s sake let’s say you are right. Well, the adoption rate is 20% per month and the user base is 0.02% of the population. There is a long, long, long way to go to even get to 1% of the population let alone 50%.

        Overall, I can’t see how the bitcoin protocol and the tech innovation it represents can be abandoned.

  10. An experienced bitcoin miner here. I have a “farm” in melbourne and have been mining bitcoins for years.

    My kids grow up with iPhone, iPad, online payment, in-game shopping, virtual goods purchases etc. One day they will find bitcoin neat and handy. Thats why I think the bitcoin will be widely used in the future.

    Daily generated bitcoin amount is “fixed”. More people come to mine it, less each person will get. When it costs me $1000 hardware+electricity to mine 1 BTC, I simply refuse to sell it for $900. So the popularity is the only variable in this math.

    There is no fundamental issue with bitcoin. But there are many small problems. They all have been addressed, discussed and researched. nothing critical so far.

    My mom, a woman survived ww2 and see the world changing for half century, encouraged me to do the bitcoin business. Her words put in English are: “the current economic system really needs a big change”. And I believe that. Especially when I see how much cheap credit the banks throw out while they don’t really have it.

    Oh, I’m not making any points. am I?