Monday, September 24, 2012

Bitcoins, Theft, And Better Business Reputations

Recently there was another bitcoin theft- apparently there was some unencrypted back up somewhere. The thing about bitcoins is they are trackable, which does not mean the thief necessarily has inadvertently revealed his identity, but it does mean that potentially, a merchant could run every bitcoin transaction against a database of known thefts.
Why would merchants want to do this? Well, it solves a problem within the bitcoin system. If you are already in the bitcoin system (I am not) and you are at all invested in the system, every time theft of bitcoins hit the news, your hard work is in peril. The second reason you'd want to do this is because it makes you look good. You've got people selling, or trying to sell drugs, guns, and whatnot- there is a trust problem. Committing not to accept stolen bitcoins is the type of exercise that helps businesses get a solid reputation.

Okay, I do know, in general, that it is trivially easy for individuals to create and use a different 'wallet' for every transaction, but what I am guessing here is that merchants need a half-way decent reputation, so they are likely to keep the same address over time. If they ever did renege on their agreement and accepted a stolen bitcoin, then it would eventually be noticed once they used it in a transaction.

If this were at all successful, then the number of bitcoins in circulation would drop below what was initially expected, but this is just deflation. Each bitcoin actually in circulation would be worth a little more, thus every bitcoin owner would have a bit more purchasing power. This is good, despite the hysterics of every central banker everywhere. It turns out they hate it when you take away their smoke and mirrors.

Now, obviously, the jury is still out on bitcoins as currency. They seem like fiat money, but slightly complicated, since it takes time and cpu power to generate one, and once a certain amount is made, no more will be. Gold and other commodities still seem to have it beat by a long shot in terms of being a store of value. But it does seem that, in this particular case, bitcoins have a unique feature that other currencies don't necessarily have. The merchants would not have to act as police, but merely tell any customer that had one of these stolen coins that that particular one couldn't be used and do you happen to have a different one?

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