Venture capitalist wins US bitcoin auction

Jul 02, 2014

A California venture capitalist announced Wednesday he won the US government auction of bitcoins, and plans to use them to help emerging economies that are "hamstrung by weak currencies."

The terms of the winning bid were not announced, but the 29,000 bitcoins seized by the FBI in its investigation of dark Web bazaar Silk Road would be worth some $19 million at current rates.

Draper, a founding partner of the California venture fund DFJ, will work with the bitcoin exchange Vaurum "to provide bitcoin liquidity in emerging markets," according to a Vaurum statement.

"Bitcoin frees people from trying to operate in a modern market economy with weak currencies," Draper said in his statement.

"With the help of Vaurum and this newly purchased bitcoin, we expect to be able to create new services that can provide liquidity and confidence to markets that have been hamstrung by weak currencies.. We want to enable people to hold and trade bitcoin to secure themselves against weakening currencies."

Bitcoins, according to backers, allow for an efficient and anonymous way to store and transfer funds online, but some governments contend the lack of regulation creates huge risks, and that virtual currencies are often linked to money laundering and organized crime.

The auction last Friday was for one of two "digital wallets" seized by officials. The second contains some 144,000 bitcoins, making the US government one of the largest holders of bitcoins.

Bitcoins were created by a computer programmer in a way that allowed only limited amounts to be created. Whether they represent a currency is debated, but they are not backed by any central bank or government.

Vaurum said it has launched trading platforms in emerging markets, and hopes that addition of 30,000 would make it easier to buy and sell the currency in these countries.

"It's still quite difficult to get access to bitcoin in these developing economies —and that's exactly where it is needed the most," said a blog post from Vaurum chief executive Avish Bhama.

"Our goal is to build reliable infrastructure and increase liquidity, which are two major challenges in the ecosystem."

Bitcoin values have been notoriously volative. The dollar worth of a Bitcoin has rocketed from just cents in 2010 to a $1,200 peak in December, but has since fallen back. The Winklevoss bitcoin index placed the value at $650 at 1400 GMT.

Explore further: US begins 'unprecedented' auction of Silk Road bitcoins

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Eikka
4 / 5 (1) Jul 02, 2014
Central bank or no central bank, the value of fiat money is ultimately backed by the collateral to the debt that is used to create it. If the debt isn't paid back, the collateral becomes the property of the bank, and the bank sells it to remove the amount of money from circulation when the debt is due.

The debt mechanism makes sure that in theory the money always buys something because the bank that issued it has to buy the money back. In reality of course it may become just toilet paper due to mismanagement and lack of trust.

But Bitcoin doesn't have that mechanism - it doesn't have any value guarantee mechanism - so it's entirely possible to make bitcoins and buy stuff with bitcoins, and then refuse to accept it back as currency - leaving the selling party with a bunch of worthless bits.

That's what everybody's trying to do with it anyways.
Eikka
4 / 5 (1) Jul 02, 2014
The often repeated argument that the effort that goes into mining bitcoins and calculating the blockchain transactions is what provides Bitcoin its value, but that simply isn't so.

Because it doesn't have to be that hard. The bitcoin mechanism is as if a banker was required to burn a new car every time someone makes a bank transfer, but they get rewarded in money more than the cost of the car for doing so. It's arbitrary and completely unnecessary, and even if it was necessary for the function of the system, having to do work just to use the money isn't making the money valuable.

On the contrary. Bitcoin actually has negative intrinsic value because every transaction and every new coin mined represents a waste of energy and materials. This is true for all money to some extent, but every other kind of money at least tries to minimize the cost of the money and the handling thereof whereas Bitcoin makes a point of having to solve difficult energy consuming riddles to run the economy.

Returners
1 / 5 (2) Jul 02, 2014
Metal coins have intrinsic value, even if it's very little.

This is why copper, silver, and gold were used as currency for thousands of years. now the funny thing is Gold had a high value even before it's really important properties were discovered, but the point is a currency based on a real material asset who's worth is real and material is ultimately better.

You could stabilize the value of the economy and materials in it by defining the Dollar in terms of metals.

If the government had the power to coin money (which they do), then they have the power to set the value of metals. If they limited themselves to changing the contributors to the dollar's value by 1% per year in order to adjust for new materials and adapting markets, then they would have a currency who's value was reliable, but still flexible enough to be slightly adjusted when needed.

For example, if you defined the value of Copper, Gold, Silver, and Platinum to be w, z, y, and z dollars, etc...
Returners
1 / 5 (2) Jul 02, 2014
You don't have to go around defining everything, just a few common, but valuable things that are traded and have material value.

If you have these things defined, and you make a law so the government can't change their dollar-value definitions by more than plus or minus 1% per year, then combining that with modest "sin taxes" on things like wastes, refusal to get vaccines for children, and excessive pollution, you would STABILIZE the dollar and it's value would be intrinsic.

Another material who's value you might want to define would be Phosphorous, because that would regulate the artificial fertilizer use, which would encourage greener crops growth and stabilize food prices, BECAUSE all food has phosphorous in it; every link in DNA has a Phosphorous atom.

This would produce an economy where green food is encouraged, but artificially fertilized food is still allowed.

Sell of Water and lumber are more valuable that metals, so it makes sense to define the dollar in those terms too