Bitcoins Cryptocurrency explained by Steve Gibson
twit.tv
twit.tv
"It's something that a cryptographer, a Japanese cryptographer created about two years ago called BitCoin. ... this thing really looks like it's the first solution to the concept of a distributed, non-central server, no central clearinghouse. ... it's Internet currency, which can work and is working."
BitcoinWatch offers an overview of what's happening in the Bitcoin network: http://bitcoinwatch.com/
One bitcoin was worth 0.25 USD first time I checked. Last week or so, it had reached ~0.7 USD.
Today it's over 1 USD. I'm amazed.
Which brings me to two questions the podcast left me with (i'm a developer, not an economy expert, so these might be really dumb questions):
1) is the hard cap really a good idea? Generally, currencies seem to lose value over time. Not to gain it. As the value can only increase, what's the incentive of spending coins now when they could be worth much, much more in two years.
2) being able to anonymously move coins between anonymous peers makes this really interesting for online payment (it's equivalent to paying in cash), but isn't this also the perfect solution for money laundering? Especially when combined with above fact that the value ever increases.
Still: something like this would really help in solving the micropayment problem, which exists to this day.
Not really. As I see it, the value is a function of demand. The fact that bitcoins have risen in value so fast, means that demand and confidence is also growing.
There isn't really a hard cap. It's just that it will get increasingly difficult to generate bitcoins, so in effect we won't have more than 21 million. The idea is to provide a predictable increase of the money supply. That is good because you know nobody's going to suddenly dump 21 million more bitcoins in circulation, and halve the value of your coinage.
That's what's happening with USD. They keep dumping trillions of new dollars in the money supply, something I really wouldn't like if I had dollars in my bank account. Just ask Zimbabwe, where they need a cartwheel of money to buy dinner at a restaurant.
So what if demand keeps growing and we need more than 21 million coins? Well the system supports up to 8 decimal points. I guess that will have to do.
As far as money laundering goes, I think it's not that much different from regular cash. I also think that tracking everyone's spending/earning habits is not the best way to stop crime.
where does the currency come from? What creates the currency? How much currency is flowing through the system? How do you monitor that and regulate it? How do you prevent it from being inflated? How do you keep people from fraudulently creating currency? How do you keep someone from, if they have some, from reusing the same currency? All of that has been solved with this system in some very clever and very new ways.
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in the same way that the abbreviation for U.S. dollars is USD, and euros is EUR, BitCoin's abbreviation is BTC
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imagine that there are, among all these peers, there are people exchanging value. They're exchanging bitcoins. A bitcoin exchange is somebody wants to send somebody else some bitcoinage. So the whole system works with an asymmetric key system, a public key system where they have both a public key and a private key. They take some amount of bitcoinage and put their public key, sort of associate or include their public key in the transaction, also the public key of the person it is being sent to. And then they sign it with their private key.
So what that creates is, that creates a transaction that only they could have originated because they're the only ones who have their private key, which they keep secret.
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Now Google "bitcoin miner," as in a gold miner. What's happened is that there are people on the 'Net that have built bitcoin-creating boxes with as many graphics processing units as they can get, with fans cooling them, they're overclocked, they're pouring Freon over them. These things are running 24/7.
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There will never, ever, ever be more than 21 million bitcoins created.