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February 19, 2014

One quality and one myth of bitcoin long have puzzled me. The quality is that transactions are irreversible. Now, it’s true, we want to close large deals and wrap a bow on them. That’s why title companies. At the same time, it’s important to be able to reverse transactions that are wrong. For example, when some identity thief tries to sell your house. That’s one reason police and courts exist. The notion of a technical “solution” to those mechanisms misunderstands what is the problem. People rarely use cash for large transactions because they don’t want their money to slippery.

The myth is that bitcoin transactions are anonymous. How can they be, when they all are recorded, back to the start of time, in a public blockchain that is synonymous with bitcoin itself? As this article puts it, “every bitcoin is by nature a marked bill.”

In short, bitcoin combines the slipperiness of cash with the traceability of credit cards. That seems like a bad combination to me. Well, millions of dollars of bitcoins have slipped the exchanges holding them. And since then, the exchange rate has been remarkably stable. Something fishy there. Of course, I thought it all was smoke and mirrors when the exchange rate was 50 times less. I should have bought then, and sold a month ago. I would be rich. Assuming my bitcoins weren’t among those that slipped away.

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