Bitcoin in traceable. Much more traceable than something like cash or gold.
It can be taxed. In fact, it lends itself very well to taxation since each transaction is indelibly recorded. Just because no one's implemented taxation doesn't mean it can't be done.
If it can be taxed it can be regulated.
It does cut out the banks. That is a strength. The serpentine bank transfer system that skims transaction fees on a huge number of transactions can be avoided. This has some obvious benefits (as most things that reduce transactional friction do -- I mean, most of us on HN are probably in the friction reducing business in one form or another).
Government does not have to issue it. The jury is still out on whether this is a net positive or not. I think it is a worthy experiment since government control of the money supply seems like more of an accident of history than anything. It /could/ be a fundamental strut in the framework of effective government but I think that might be overselling it. Bitcoin gives us a vehicle to test that theory.
In short, Charles Stross is confusing the way things are with the way things must be and that is a mistake. Most of these problems, if they are truly problems, are solvable. And, at the very least, their impact will not be catastrophic so it is worth the risk to see where this experiment leads.
> Bitcoin in traceable. Much more traceable than something like cash or gold.
This is something that is often forgotten in these discussions. Everything is public with bitcoins. The only open issue is binding the transactions to an ip and via that to a person. And considering how widely the internet is monitored these days that should not pose a problem.
After that analyzing connections between wallets is a similar problem as analyzing friendships in a massive social network. Transactions form a graph from wallet to wallet.
If massive drug rings would use Bitcoin instead of cash it would actually be easier to track them down than it is right now.
In addition bitcoin is trivially forkable. It has only as much value as people want to give it. It is in essence as imaginary as any fiat currency is.
>> binding the transactions to an ip and via that to a person
Naive question: since IP's don't map 1:1 to people (proxies, the tendency of people to use lots of devices in lots of places), how does this work in practice? Does it really work in practice?
It doesn't have to work 1:1 all the time for every IP a person may use to make transactions. Unlike in torrents where one download cannot be tied to another and you have plausible deniability that you yourself might've not used that, with bitcoin the history stays.
As an example if you issue transactions from your home and from your place of work you are immediately nailed (e.g brought to questioning) even if there are 1000 transactions in your walled made behind 7 proxies. Open WiFi argument doesn't hold water in that case.
And even a single access from a place that maps to someone will taint the wallet permanently, as an example: Busting a drug ring. Set of wallets are suspected to be a part of a massive drug and money laundering operation (few of the wallet addresses are advertised on silk road and are getting a lot of transactions in, and a bunch of laundering addresses are recognized as a dense cluster in the graph).Then some not so smart subordinate accidentally uses a wallet app from his normal cellphone. That will instantly cause the cops to go after him and investigations will start.
Basically if you have ever used your wallet from places where you can be recognized the wallet is tainted. You will be investigated if the said wallet is ever used for anything shady ever.
The key here is that even if a single access does not automatically link it to you, multiple accesses will. The only way to keep clean is always route every transaction always trough weird proxies. And hope that everyone you transfer to/from will do the same. Get a gift from your mom who doesn't do it? That's it. She may be interrogated and you're bust.
In an investigation, they'd eventually get a warrant for your electronics. They'd comb through them, and probably find your bitcoin wallet. In the event where it's relevant to the case that they see the contents of your bitcoin wallet, you'd be compelled to decrypt it.
So they wouldn't ever have to tie your IP address to a transaction - the feds or local police would just get your wallet and trace backwards from there.
You may notice he called those open issues. In other words, for at least the two reasons you cited, they are not solved problems.
It's also not an unsolved problem, since communication using IP protocol means that someone must assign you an IP, and those assignments can be logged... similarly operating a proxy server means that you are a target for government and court subpoenas, and in some jurisdictions it may be mandatory to maintain these logs and produce them on request, regardless of the sometimes in-feasibility of that.
Most of your points are valid, and I also found the article to be rather weak. With that said...
The serpentine bank transfer system that skims transaction fees on a huge number of transactions can be avoided.
... and is replaced by a different transfer system that skims transaction fees.
Actually, this is the main reason for why I believe Bitcoin will not "conquer the world": It has the potential to put downwards pressure on transaction fees, but it is inherently inefficient (the "carbon footprint" mentioned in the article), which means that it can be undercut by a competing system.
Government does not have to issue it. The jury is still out on whether this is a net positive or not.
This really depends on your reading of history. It seems Bitcoin is well on the way to reinvent the gold-backed free-banking system of ca. the 18th and 19th century.
It's true that there are people who believe such a system to be superior to what we have today, in the same way that it's true that there are people who believe humans play no role in global warming (that is, the vast majority of scientists studying the issue are on one side of it, but there's a loud, politically motivated minority of the population who disagrees).
You don't have to have the power and influence of JP Morgan to launder bitcoins. I'm not an expert but it seems much more easy and untraceable to launder bitcoin vs. dollars or other currencies. I may be mistaken though.
If everyone is doing it then it becomes much easier to run a mixing service, and to the extent that a mixing service polices its own membership, the more unsavory characters could be weeded out...
But as for traceability, if you're not mixing your coins with other peoples' coins, there's not much you can do at the point of sale to obfuscate the origin of those coins.
Everything is absolutely traceable. You can identify every transaction that a bitcoin (or fragment) was involved in since it was minted. With a "taint analyzer" (not kidding, this is what it's called) you can see what percent of the bitcoins stored at an address were ever stored at another given address, to see how many of these coins are "tainted" by those coins' history.
That being said, simple mixing services likely do still exist, and if you are willing to pay a small trade fee at most any online exchange, you can (probably) be rid of your existing bitcoins and quickly having new bitcoins with the stroke of a keyboard. If those exchanges are following KYC and AML, you still haven't broken the trail.
It can be taxed. In fact, it lends itself very well to taxation since each transaction is indelibly recorded. Just because no one's implemented taxation doesn't mean it can't be done.
If it can be taxed it can be regulated.
It does cut out the banks. That is a strength. The serpentine bank transfer system that skims transaction fees on a huge number of transactions can be avoided. This has some obvious benefits (as most things that reduce transactional friction do -- I mean, most of us on HN are probably in the friction reducing business in one form or another).
Government does not have to issue it. The jury is still out on whether this is a net positive or not. I think it is a worthy experiment since government control of the money supply seems like more of an accident of history than anything. It /could/ be a fundamental strut in the framework of effective government but I think that might be overselling it. Bitcoin gives us a vehicle to test that theory.
In short, Charles Stross is confusing the way things are with the way things must be and that is a mistake. Most of these problems, if they are truly problems, are solvable. And, at the very least, their impact will not be catastrophic so it is worth the risk to see where this experiment leads.