3 heads

3 heads
The Last Great Prizefight: Jack Johnson, Tex Rickard, Jim Jeffries

Tuesday, June 14, 2011

Bitcoin, Betcoin

Thanks to the exceptionally obnoxious UIGEA, funding offshore wagering accounts is cumbersome. One of the charges leveled against Internet poker sites during the recent crackdown is money laundering. Reportedly, one of the big players accepted credit card charges for non-existent flowers at a phony online florist site. (I wonder if different flowers represented different chip denominations. e.g. black-eyed susans: $100, red-roses: $25.) Well, it's hard to gamble if you can't pay or get paid.

Perhaps the answer to this funding problems has arrived; perhaps the advent of Bitcoin will short-circuit Uncle Sam's (and Uncle Zhou's or any other Uncle's) strong-arm tactics.

Bitcoin eliminates government control of currency and the banking sector's control of transactions. The development of Bitcoin is one of those rare unexpected events that could have a huge economic and political impact: a true black swan. What is a black swan? First of all, everyone should read either or both of Nassim Taleb's books: Fooled by Randomness or the Black Swan for a more complete explanation, but the following is from the Black Swan's jacket:

A Black Swan is a highly improbable event with three principal characteristics: It is unpredictable; it carries a massive impact; and  after the fact, we concoct an explanation that makes it appear less random, and more predictable, than it was. The astonishing success of Google was a black swan; so was 9/11. For Nassim Nicholas Taleb, black swans underlie almost everything about our world, from the rise of religions to events in out own personal lives.

So, is Bitcoin a black swan? Here is Michael Suede's take in Libertarian News:
Ask most people what the most dangerous thing man has ever created is and you will almost certainly receive the uniform response of “nuclear weapons.”
Lo, there is another far more nasty entity in existence that most people have never heard of.The Bitcoin.
I don’t want my joking to fool you into thinking that this isn’t the most important development in human history.It is.When people can be paid in a currency that is impossible to trace, impossible to take, and impossible to tax – the governments of the world will all fall to the dustbin of history.
Hyperbole? I can't help but agree that the advent of Bitcoin could be one of those great, earth-shattering moments of history. Governments consigned to the dustbin of history? Seems unlikely, but who knows for sure. (Randomness, in the end, is just unknowledge. The world is opaque and appearances fools us. - Taleb) How Bitcoin will change the future, if at all, is unpredictable, but we may be watching a revolution in the making. That's exciting. If you've ever read, 10 Days that Shook the World, the excitement John Reed conveys about the 1917 Bolshevik Revolution is the kind of excitement Bitcoin is generating among some of the modern-day commentariat.

Now for the more prosaic: as far as I know, no offshore books accepts Bitcoin as payment. Honestly, it would be difficult due to the fact that the Bitcoin exchange rate is incredibly volatile. The price changes so rapidly that it is impossible to set a price for anything. How could I charge 1 BTC for my book one minute and either 2 or .5 BTC five minutes later? (For the time being, I'm still concerned how much BTC's are worth in dollars since I can't use BTC at the grocery store.) Until the price stabilizes, the only viable solution would be to avoid converting Bitcoins into dollars; rather, just leave them in your offshore account unconverted. Eliminate the conversion step and make wagers in BTC denominations. It would certainly be convenient to be able to send a few BTC directly from my computer rather than trundle down to the Western Union office. I think I'll email that suggestion to some offshore bookies.

In the end we are being driven by history, all the while thinking that we are doing the driving. -Taleb

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