Excellent post, killer!

It provides a great backdrop to the 2 questions I have:

(1) will the technical fundamentals of Bitcoin make it so resilient to being destroyed by the central powers that a significant enough number of people will continue to use it even if it were outlawed to significantly disrupt the existing economy?

(2) if so, will they be able to control Bitcoin by assimilation, integrating it into the fractional reserve banking system etc etc. until we're effectively back to where we are now?

I suspect that the answers are (1) yes and (2) no

Umm, no. They don't use savings to give loans. This is the most important aspect of our current monetary policies you need to understand:

http://en.wikipedia.org/wiki/Fractional-reserve_banking

To wrap it up: banks create ~98% (2% is the reserve requirement in EURO zone at least) of the loan out of thin air. Just think about it. They only ad the digital numbers to your bank account and in return, you promise to work 9-17 for the next 20 years to pay the loan back.

That's why I call the fiat money as the modern slaver whip.

Bitcoins can easily be stopped. If Bitcoin sees steady adoption and abuse is not widespread it can probably coexist with, and gradually take some market share from banks. If it continues it's current militant/illegal approach it will be gone fairly quickly.

My opinion
1) The fundamentals of bitcoin are VERY strong. There are a few minor issues which will be worked out over time. As more people adopt the bitcoin currency the power of bitcoin will increase and so will the economy. Eventually we will hit a point where EVERYONE will use bitcoin simply because its more efficient and makes economic sense to do so. Countries that outlaw bitcoins will be left behind and eventually those laws will be scrapped because they are being left out of the bitcoin economy. Its like people using dollars. Right now oil is traded in dollars because its easier to have everyone, "on the same page." per say. The same thing will happen to bitcoins. Everyone will use bitcoins because it just makes everything easier.  


This is a good chart to show where bitcoin is headed. The innovators wrote the source code, mined the early bitcoins, developed the early exchanges. Now we are in the early adopters phase where people buy and sell bitcoins for real money and use them for commerce, mainly technical savvy people. These people will develop technologies that make bitcoins EASIER to use for EVERYONE else. Bitcoin banks, more complex exchanges so on so forth. The next step will consist of getting average non-technical people to use bitcoin. The only way this will happen is if bitcoin is easy to use, can be spent at many places, and is secure. If we make it over the top of the hill then bitcoin is definitely here to stay for the long term. The late majority will probably be forced to switch over to bitcoin because everyone prefers to accept bitcoin over other forms of (riskier) currency. The laggards will just be people who don't trust online currency, mostly consist of old people.

2) They might be able to but only if we allow it. For example, think of the old days where we had full reserve banking where people put their gold/silver coins in the bank in exchange for certificates. Then people simply traded those certificates and never got their gold/silver out. Its going to be the same way. Bitcoin will be full-reserve banking BUT not if the banks start over issuing bitcoin certificates. Therefor, the important thing to mention is to keep most of your bitcoins in your wallet and not in a bitcoin bank.

Bitcoin banks will exist but they will operate more like small time companies and not the current mega corporations we have today. Bitcoin loans will probably be at high interest rates, since it has to be full reserve and most people won't keep large amount of bitcoins in the bitcoin banks. Instead the bitcoin banks will operate by providing currency exchange or offering debit cards. The debit cards would be able to be used at any store that accepts credit/debit cards. You would keep some bitcoins in the bank and then when you processed the transaction the bank would pay the transaction and convert the relevant BTC to cash on the fly. They would charge a small fee for this and BTC to BTC transactions would be free. They won't be that profitable once the market has matured.

Its not essentially the same thing, you are not aware of how our banking system works. You are right with what you said above but the key difference is another:

A BTC-bank can only lend what it possess, no matter if own funds our customer savings. If the webwallets/accounts of customers + own funds add up 100k btc (e.g.), the btc-bank can only lend 100k btc maximum, because each bitcoin is unique.

A Dollar/Euro/etc.-bank can lend 20+++ times the money it possess in own funds and customer accounts. 100k$ in funds+accounts lead to millions of loans.

Think of btc as of gold. A gold-bank can only lend whats physically in their safe. They cannot create 100k ounce of gold out of 5k.

Easily. If there is one persistent fallacy that is repeated over and over again on these forums, that needs to be put to rest it's this "Bitcoin is unstoppable" and "we don't need anyone" foolishness. The Developers don't think it's unstoppable- and they know the code back to front.

Buh buh... Bittorrent! Bittorrent is a copyright issue, currency is potentially a National Security Issue. There is a world of difference between Judicial Enforcement (taking your domain away) and National Security Enforcement. We have seen the US government take limited judicial action against cybercrime- yet people judge their capabilities by that. Only one time have we seen them use tactical measures against a cyber-threat. These are the people who brought us Stuxnet- pardon me for unladylike language but they get the nod and they will f*ck your sh*t up.

Tough talk aside, push comes to shove you are not going to take on USCYBERCOM from your living room couch.

Every lawyer I have asked has insisted there are a dozen ways under interpretation of CURRENT laws Bitcoin could be made illegal for all practical purposes. Then all they have to do is scare off enough users that there are too few remaining for the currency to be viable for trade.

There are already illegal forms of data, already laws governing the legal use of encryption, already warrentless search and seizure of data carrying devices during traffic stops and border crossings- you have VERY few privacy rights on your data storage devices. Asset forfeiture laws already put the burden on YOU to prove where your assets come from. The IRS is already imposing it's will on foreign banks around the world- and getting compliance. Bitcoin is compliant with Islamic banking law- no usury, what do you think is going to happen when the Arabic forum goes live here? You think the Feds are going to be wringing their hands wishing they could do something but we're just too clever for them?

Don't care if they make it illegal? Going to fight the power? Okay, lets hope every last one of you had been on Tor or an overseas proxy every single time you logon- because the Bitcoin.org server, with it's entire membership database and IP logs are located in the US and could be subpoenaed in a heart beat.

Make people scared to use bitcoin? No problem. All they have to do is drop a few USB sticks in the evidence box next time they bring down a KP ring and every soccer mom in the country will be screaming "won't somebody think of the children!". No one is going to use and trade a currency if it means getting dragged into court for possessing ChildRapeCoins and becoming a registered sex offender. Oh sure- they don't have a case, you're right- but no prosecutor is going to let that loss go on his record (soft on KP, the guy got off on a technicality) and 100k USD later you'll plead it down after your mugshot has been plastered all over the web. People are getting jailed for possessing cartoons- it can happen.

So can it with the "unsinkable ship" "they can't stop us" talk. Yes. They. Can. That does not mean they will- but it's pure hubris of the most ignorant sort to think it can't.

If Bitcoin is not unstoppable from a technical point of view, then it's already dead in the water. Has anyone really claimed this?

Watch this interview with Gavin Anderson bit coin programmer/administrator. It's eye opening, especially what he says about working with the government,  using bitcoin is not anonymous, the exchanges are registered with the government and complying with all laws.  This guy also gave a talk to the CIA this week. You can find the link for that yourself.

http://www.cbsnews.com/video/watch/?id=7368784n

Everything in that post is right on the mark.  It should be posted as a sticky.  New members should have to read it and sign it like a microsoft license agreement.