Bitcoins are still useless

1/09/2014 04:21:00 PM
Will the media ever stop representing bitcoins as actual coins in graphics? It's highly misleading.
Tyler Cowen points us to some clever alternative uses for bitcoins. I will admit, they are clever ideas. But they are also essentially useless ideas, for exactly the same reason bitcoins are essentially useless. All the ideas are similar to this one, so lets look at that.

The idea is to provide a way companies like Google can eliminate the large numbers of bot-generated spam accounts. What you would have to do is purchase six consecutive bitcoins (bitcoins exist in chains where each coin contains information about the previous coin, thus allowing us to verify that the coins are sequential), give them away for free to a random assortment of bitcoin miners. I don't fully understand the actual programming involved in bitcoins, but the gist is that you keep a record of that bitcoin transaction, which services like google would then be able to verify using the bitcoin system whenever you want to create a new account.

Basically, the only thing this does is require you to pay money to create a google account. But, it's a really complicated way for google to start charging money to create google accounts, except that the money goes to random bitcoin miners rather than google shareholders. It would be more profitable and way easier to just enter a debit card number.

What does using the bitcoin system do for us? One thing that's different here is that with the bitcoins we've created a passport that could potentially be used to very across multiple platforms--the same 6-bitcoin sequence could be used to create both google and facebook accounts, for example. However, allowing passport reuse just reduces the cost that the bitcoins are supposed to impose on bot-generated spam accounts. Black market firms could simply buy up a large number of 6-block passports and sell them to people wanting to create bunches of google accounts, and sell them again to people wanting to create facebook accounts. And since these services generally do allow the same individuals to have more than one account, the reality is that they could just keep reselling these fake passport idetities many times across multiple platforms. I personally have four separate google accounts (it's a long story--I promise I'm not a bot!). So given that the passport can be reused, it isn't clear to me that it's really substantially increasing the cost of making fake accounts on the internet.

And besides, why not just have a big firm--like, say, google--directly sell internet identity passports? We'd bypass all the complicated bitcoin stuff, and companies could verify accounts just by asking google: "Is this yours?" This gets at a much broader problem with the whole bitcoin framework--in a world where institutions are willing to back obligations like checks and identity passports, there's no value-added from a system that does the exact same thing without relying on institutions.

That leaves us with the only way in which Bitcoin supposedly differs from institutional approaches to the verification problem: bitcoin is supposedly anonymous. Hence, people would be able to create google accounts without revealing their identity to google, but while supposedly verifying that they are not a spam-bot (because this process is supposedly costly). My response here is just that bitcoins aren't actually anonymous, and that was never really a prominent design goal of the bitcoin project. Now, I suppose there are ways to obtain bitcoins totally anonymously, so that a dedicated, tech-savy user would truly be able to have an annonymous identity passport. But for most transactions, your bitcoins can in fact be traced back to you. My advice is that if you wish to stay anonymous, don't use the internet.